CORPORATE GOVERNANCE AND FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN NEPAL

Abstract

This thesis exmines how corporate governance impacts the financial performance of commercial banks in Nepal, focusing on variables such as firm size (FS), board size (BS), the number of women on the board (NW), the number of independent directors (NI), and the audit committee (AC). Using data from ten banks over a decade (2013/14 to 2022/23), the study finds significant correlations between governance factors and financial performance. Specifically, firm size (FS), board size (BS), and the number of independent directors (NI) are negatively associated with return on assets (ROA) and return on equity (ROE), suggesting that larger firms and boards, as well as more independent directors, may lead to lower financial performance. In contrast, a higher number of women on the board (NW) and a strong audit committee (AC) show positive correlations with ROA and ROE, indicating that increased diversity and effective audit committees could improve financial performance. Regression analysis supports these findings, revealing that corporate governance variables significantly affect financial performance. However, the study also finds that the number of women on the board (NW) negatively impacts ROA, while the audit committee (AC) has a minor positive but insignificant effect. The research underscores the intricate link between corporate governance and financial outcomes, suggesting that additional research is needed to further understand these dynamics and emphasizing the crucial role of effective governance practices.