2013 EC Academic year

Zemen Post Graduate College

Department of Management
Program: Masters of Business Administration
Course: Business Research Methods (MBA612)
Assignment III: Article review Individual assignment (Out of 15%)

Dear student, please properly review the presented paper abstract, Background of the study and
statement of the problem, and properly replay to the proceeded questions below.

Abstract
The study was aimed to investigate the board size, independence of the board members and
frequency of the board meetings on the performances of public and private commercial banks in
Ethiopia. The data was gathered from both primary and secondary sources. The study found that
public banks have greater number of board members compared to private banks though the
difference was not significant and the average frequency of meetings for private banks is greater
than that of public banks and this has strong correlation for private banks. The correlation between
independence of board of directors and performances of public banks is weak while there exists a strong
correlation for private banks. Banks with a greater number of external board members have better
profitability. It was concluded that banks with frequent board meetings have better financial
performances.

Background of the study

Corporate Governance is aimed at ensuring proper governance of business as well as complying
with all the governance norms prescribed by regulatory body for the benefit of all interested
parties including society. Particularly in banking sector, good corporate governance is very much
essential for justifying its role in money management. Best practices of corporate governance in
banks are of great value to a number of stakeholders’ viz., depositors, creditors, customers,
shareholders

Of course, poor corporate governance in banks is not a new subject. This inefficiency has been
around for a very long time. Since the beginning of the modern banking, many banks across the
world were lost primarily because of factors related to poor corporate governance. Most banks
did not fail due to lack of customers but due to how they were managed and governed

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(Zabihollah, 2005). The Ethiopian commercial Code of 1963, the licensing and Supervision of
Banking Proclamation No.84/94, and the Monetary and Banking Proclamation No. 83/94; and
subsequently issued Directives are important Laws and regulations governing registration,
formation and governance of commercial banks in Ethiopia.

According to these proclamations, banks in Ethiopia can only be formed as share companies.
Since commercial banks are crucial to economy, prudent corporate governance is an important
factor in the wellbeing of the economy in general and financial sector in particular. The boards of
directors have an important role in alleviating the agency costs that arise from the separation of
ownership and decision control in corporations (Fama and Jensen, 1983). Short et al. (1999) also
took this view and argued that the boards of directors are the central corporate governance
control mechanism responsible for monitoring the activities of managers, whilst Jensen (1993)
describes the board of directors as the apex of the internal control mechanism in an organization.
Therefore, the sole existence of board of directors is to protect the interests of shareholders from
where it receives its authority for internal control (Jensen, 1993).

However, a board nominated by insiders, clearly would not be able to perform its supervisory
functions properly, as personal relations make critical reflections of corporate policy less likely,
given the fact that insiders are subordinates of CEO and they are not in a strong position either to
monitor or discipline the CEO, (Daily and Dalton, 1993).This could be avoided with the
adoption of outsiders in the board who could enhance the board's monitoring power since they do
not hold active role in the company except for their directorship which puts them in the best
position to judge managerial decisions objectively (Fame, 1980).

The Ethiopian code and the subsequently issued banking proclamation obviously serve only as a
guideline to be implemented with the wise discretions of the board members; hence the stance of
being an effective measure lies totally on the abilities, composition and judgments of those that
make the board. This study therefore, is aimed to investigate the composition and role of the
board of directors of commercial banks in Ethiopia. The study also examined the selection
criteria for board membership and remuneration being paid to the members of the board of
directors. The study further envisages examining the role of the corporate governance on the
financial Performance of commercial banks in Ethiopia.

Statement of the problem

Following the financial sector reforms introduced since 1992, the Ethiopian banking industry has
undergone many developments, of which the proliferation of private banks is noteworthy. In
2010/11, four public banks and around 13 private banks are operating in the country and some
more three banks are under formation. Understanding the governance of banking firms is
arguably more important than ever before. The purpose of this paper, therefore, is to examine
board structure, composition and selection in the banking industry and its relationship with their
performance.

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The Ethiopian Commercial Code of 1963, the Licensing and Supervision of Banking
Proclamation No.84/94, and the Monetary and Banking Proclamation No. 83/94; and
subsequently issued Directives are important Laws and regulations governing registration
formation, governance including the rights, duties and responsibilities of shareholders, directors,
and chief Executive Officers of commercial banks in Ethiopia. According to these proclamations,
banks in Ethiopia can only be formed as share companies and required to be governed by Board
of Directors. The effectiveness of commercial banks primarily relies totally on the abilities,
composition and judgments of those that make the board. To the best of my knowledge, studies
on the role of board of directors, their composition and remuneration practice and the impact of
board size and composition on the financial performance of commercial banks in Ethiopia have
not been adequately addressed and hence this study was aimed to fill such a huge literature gap
in the area.

Critically review the abstract, background and statement of the problem for the above article and
formulate the following
1. Possible research topic
2. Four possible research questions
3. General objective of the study
4. Possible four Specific objectives of the study
5. Possible three research hypothesis
6. Critically evaluate the referencing style
ATTENTION FOR BOTH ASSIGNMENTS:

- Submission date: May 10, 2021

- A plagiarized research proposal will be automatically unconsidered
- Submit only through an email address: tmuleye@gmail.com
- Any delay of submission will be penalized 2 points for each day of late submission
- Any confusion, you can contact your teacher via 0913504464