Effect of corporate governance on financial performance of Nepalese commercial banks

Abstract

In an effort to increase the transparency and accountability of financial and nonfinancial institutions, corporate governance has emerged as one of the most discussed topics globally. In the nation's economy, financial institutions play a significant role. The primary goal of this study is to investigate the connection between Nepalese commercial banks' financial performance and corporate governance. Return on assets and net interest margin were considered dependent variables, whereas board member size, number of independent variables, bank size, earning per share, capital adequacy ratio, and leverage were considered independent variables. During the years 2012/13 to 2021/22, ten commercial banks in Nepal participated in the study. The information was gathered from the banks' yearly reports. To examine the impact of corporate governance on the financial performance of Nepalese commercial banks, correlation and regression analysis were employed. The outcome demonstrated that while there was no significant correlation between the number of independent directors and the capital adequacy ratio and return on assets, there was a positive correlation between board member size, earnings per share, and leverage. While there was a negative correlation found between the number of independent directors and board member size and net interest margin, there was a positive correlation found between net interest margin and earning per share, leverage, and capital adequacy ratio. For improved performance, the banks should increase the number of independent directors while decreasing the number of directors on the board. Central banks ought to prioritize the expansion of banks and effectively oversee their operations. Key words: net interest margin, board member size, return on assets, independent director.