Corporate governance practices and their impact on profitability of nepalese commercial banks

Abstract

This study examines the impact of corporate governance practices on the profitability of Nepalese commercial banks in terms of Return on Assets (ROA) and Return on Equity (ROE) as primary financial performance indicators. The study consists of five chapters and also relies on theories such as agency theory, stakeholder theory, and stewardship theory. A census approach was utilized, comparing information from all 20 prevailing commercial banks and 4 merged banks in Nepal for five fiscal years (2075/76 to 2080/81). Governance variables were board size, board independence, gender diversity, frequency of board meetings, and bank size, which were examined through descriptive and causal-comparative methods using secondary data sources. The study will provide policymakers, regulators, and bank managers with lessons on how to improve governance effectiveness and profitability in emerging economies like Nepal. The study establishes that board gender diversity significantly improves both ROA and ROE, complementing studies worldwide that inclusive governance structures result in improved decision-making and financial health. But independent directors are negatively related to profitability, suggesting, in the Nepalese context, possibly too much focus on meeting regulators at the expense of strategic achievement. Moreover, frequent board meetings appear to have a weak negative relationship with ROE, perhaps evidencing inefficiencies in governance processes. Board size was not significantly related to performance, and more populous banks were less profitable, indicating potential bureaucratic inefficiencies and diseconomies of scale in Nepal's banking system. The study contributes to the broader debate on corporate governance in emerging economies by corroborating the utility of qualitative governance practice such as diversity and good monitoring over rigid structural formulas. It recommends the application of contextualized governance styles suited to Nepal's regulatory and cultural environment. The research also calls for further research to incorporate economic macro indicators and apply longitudinal designs to better capture causality between governance and financial performance. Lastly, the research offers prescriptive recommendations for the enhancement of Nepalese banks' financial performance by applying adaptive and inclusive approaches to governance. Key Words: Corporate Governance, Profitability, Gender Diversity, Board Structure, Bank Size.