IMPACT OF CORPORATE GOVERNANCE ON PERFORMANCE OF PRIVATE SECTOR COMMERCIAL BANKS IN NEPAL

Abstract

This study examines the impact of corporate governance practices on the financial performance of private commercial banks in Nepal, with a specific focus on four governance variables board size, financial leverage, non-performing loans (NPLs), and bank size and their relationship with two financial performance indicators, Return on Assets (ROA) and Return on Equity (ROE). The primary objective is to analyze the effect of these governance variables on the banks' financial performance using a descriptive, correlation, and regression analysis approach. The study adopts a purposive sampling technique, selecting eight private commercial banks from a total of twelve in Nepal, with data sourced from their annual financial reports. Descriptive statistics provide an overview of the key variables, including their mean, standard deviation, and range, offering insights into the current state of governance practices and financial outcomes. Correlation analysis identifies the strength and direction of relationships between the governance variables and financial performance, while regression analysis assesses the impact of these governance mechanisms on ROA and ROE, controlling for other factors. The findings reveal that board size and bank size are positively correlated with financial performance, while higher financial leverage and a greater proportion of non-performing loans have a negative impact on performance. These results indicate that effective corporate governance practices, such as larger boards and optimal leverage, can improve the financial performance of private commercial banks in Nepal. The study’s implications highlight the need for stronger governance structures in the banking sector to enhance financial stability and performance. These insights can be valuable for policymakers, investors, and banking institutions in enhancing governance frameworks and ensuring sustainable growth.