Business Research

Corporate Governance in Financial

institutions of Bangladesh
 Introduction
 Corporate governance is the main instrument to find the agency problems and controlling risk within the
financial institution. Corporate governance essentially involves balancing the interests of the many

stakeholders in a financial institution.

 The motivation behind this research into the governance of financial institution is not a random financial
crises. But its set motion by the decision of the individual and institution operating within a given

framework of laws. Our research adds to a motto of literature that examines the linkage between

corporate governance and corporate financing and investment. This study analyzes corporate governances

of Bangladesh in Banking Sector. We chose five commercials banks (CBs) for our research.
 Problem Statements

• Thus the problem statement is , “To investigate the significant relationship between
NEF,NDF, CAPEX and AG of the bank alongside MTB,SIZE,CR,AT,CF,TBQ,CRT and
PROFIT and linking all this variable together to find the total effect on corporate
governance of financial institutions in Bangladesh.”
 Objectives of the study

 To provide an understanding of corporate governance in financial institutions.

 To find out the problem to maintain corporate governance.

 To analyze the influence of corporate governance on the listed bank and financial

institutions.
 Literature Review
Independent Variable:
 Credit Rating
 Size
 Tobin’s q
 Cash Reserves
 Market –to-book
 Asset Tangibility
 Profitability
 Cash Flow
 Continue...

Dependent Variable:

Net Equity Financing

Net Debt Financing
Capital Expenditures
Asset Growth
 Hypotheses

 Null Hypotheses (Ho)

 Alternative Hypotheses (Ha)

 Conceptual Framework

 Equation-1

Net equity financingi,t = a0 + a1 (After) + a2(After * Cash reservesi) + a3(Market-to-booki,t)+

a4(Sizei,t) + a5(Asset tangibilityi,t) + a6(Profitabilityi,t) + µi + ei,t,

Equation-2

Net debt financingi,t = b0 + b1 (After) + b2 (After * Cash reservesi) + b3 (Market-to-booki,t) +

b4 (Sizei,t) + b5 (Asset tangibilityi,t) + b6 (Profitabilityi,t) + b7 (After * Credit ratingi)+ µi + µi,t,

 Continue…
Equation-3
Capital expendituresi,t=c0 + c1 (After) + c2 (After*Cash reservesi)+ c3 (Qi,t) +c4
(Cash flowi,t)+ μi+ vi,t ,

Equation-4
Asset growthi,t = d0+ d1 (After) + d2 (After*Cash reservesi) + d3 (Qi,t) + d4 (Cash
flowi,t) + μi+ wi,t ,
 Research Designed
o Degree of Research Question Crystallization: Formal study
o The Method of Data Collection: Monitoring method
o Researcher Control of variables: Ex post facto
o The purpose of Study: Causal Explanatory
o The Time Dimension: Longitudinal studies for our research
o The Topical Scope: Statistical
o Sampling: Five commercial banks
 Data Collection
• Our research is based on secondary data and we tried to examine five commercial
banks which were selected randomly. We use annual reports and we looked into
the income statement, the balance sheet, the cash flow statement, and additional
data of the annual report .

• Our research is only concerned about secondary data analysis. Several different
kinds of ratios will be calculated in order to analyze the performance on
corporate governance of financial institutions in Bangladesh.
 Data analysis
Descriptive Statistics (Model-1)
NEF CR MTB SIZE AT PROFIT
Mean 1.015869 2.751867 2.018340 24.88968 0.213341 0.248623
Median 0.082314 0.191651 1.084095 25.69591 0.022796 0.021496
Maximum 11.24754 27.07375 12.26619 26.81536 2.710783 2.936071
Minimum 0.002091 0.127020 1.001974 20.75304 0.001860 0.000623
Std. Dev. 3.079183 6.964365 3.083778 1.809885 0.634436 0.764316
Skewness 3.066177 2.932912 3.065854 -1.228759 3.262415 3.097839
Kurtosis 10.46665 10.03878 10.46531 2.905592 12.22798 10.68316
Jarque-Bera 97.24644 87.45032 97.21735 6.300324 133.0511 101.4764
Probability 0.000000 0.000000 0.000000 0.042845 0.000000 0.000000
Sum 25.39671 68.79669 50.45849 622.2419 5.333522 6.215585
Sum Sq. 227.5528 1164.057 228.2325 78.61638 9.660226 14.02031
Dev.
Observatios 25 25 25 25 25 25
 Correlation (Model-1)
NEF CR MTB SIZE AT PROFIT

NEF 1.000000 0.984529 0.999999 -0.682536 0.979040 0.997895

CR 0.984529 1.000000 0.984511 -0.778100 0.972831 0.982582

MTB 0.999999 0.984511 1.000000 -0.682514 0.979078 0.997893

SIZE -0.682536 -0.778100 -0.682514 1.000000 -0.664431 -0.664323

AT 0.979040 0.972831 0.979078 -0.664431 1.000000 0.988472

PROFIT 0.997895 0.982582 0.997893 -0.664323 0.988472 1.000000

 Regression Analysis (Model-1)
Dependent Variable: NEF
Method: Panel Least Squares
Date: 03/15/17 Time: 23:22
Sample: 2011 2015
Periods included: 5
Cross-sections included: 5
Total panel (balanced) observations: 25
Variable Coefficient Std. Error t-Statistic Prob.
C -0.955041 0.047091 -20.28065 0.0000
CR 0.000220 0.001507 0.145710 0.8857
MTB 0.981507 0.008612 113.9738 0.0000
SIZE -0.001064 0.001637 -0.650237 0.5233
AT -0.036049 0.016392 -2.199233 0.0404
PROFIT 0.094406 0.049101 1.922691 0.0696
R-squared 0.999999 Mean dependent var 1.015869
Adjusted R-squared 0.999998 S.D. dependent var 3.079183
S.E. of regression 0.004050 Akaike info criterion -7.974476
Sum squared resid 0.000312 Schwarz criterion -7.681946
Log likelihood 105.6810 Hannan-Quinn criter. -7.893341
F-statistic 2774163. Durbin-Watson stat 1.947109
Prob(F-statistic) 0.000000
 Regression Analysis

We assume that our significant level is 0.1. Here we are showing all the variables if
null is rejected or accepting from the E-Views test results.
 Descriptive Statistics (Model-2)
NDF CR MTB SIZE AT PROFIT
Mean 3.42E-12 2.751867 2.018340 24.88968 0.213341 0.248623
Median 9.31E-13 0.191651 1.084095 25.69591 0.022796 0.021496
Maximum 2.46E-10 27.07375 12.26619 26.81536 2.710783 2.936071
Minimum -2.74E-10 0.127020 1.001974 20.75304 0.001860 0.000623
Std. Dev. 7.67E-11 6.964365 3.083778 1.809885 0.634436 0.764316
Skewness -0.627505 2.932912 3.065854 -1.228759 3.262415 3.097839
Kurtosis 11.77146 10.03878 10.46531 2.905592 12.22798 10.68316
Jarque-Bera 81.78504 87.45032 97.21735 6.300324 133.0511 101.4764
Probability 0.000000 0.000000 0.000000 0.042845 0.000000 0.000000
Sum 8.56E-11 68.79669 50.45849 622.2419 5.333522 6.215585
Sum Sq. 1.41E-19 1164.057 228.2325 78.61638 9.660226 14.02031
Dev.
Observation 25 25 25 25 25 25
 Correlation (Model-2)
NDF CR MTB SIZE AT PROFIT

NDF 1.000000 -0.088193 -0.018736 0.243096 -0.006878 -0.011743

CR -0.088193 1.000000 0.984511 -0.778100 0.972831 0.982582
MTB -0.018736 0.984511 1.000000 -0.682514 0.979078 0.997893
SIZE 0.243096 -0.778100 -0.682514 1.000000 -0.664431 -0.664323
AT -0.006878 0.972831 0.979078 -0.664431 1.000000 0.988472
PROFIT -0.011743 0.982582 0.997893 -0.664323 0.988472 1.000000
 Regression Analysis (Model-2)
Dependent Variable: NDF
Method: Panel Leas t Squares
Date: 03/15/17 Tim e: 23:39
Sam ple: 2011 2015
Periods included: 5
Cros s -s ections included: 5
Total panel (balanced) obs ervations : 25

Variable Coefficient Std. Error t-Statis tic Prob.

C 2.66E-10 8.99E-10 0.295856 0.7705

CR -3.91E-11 2.88E-11 -1.360371 0.1896
MTB 5.70E-11 1.64E-10 0.346349 0.7329
SIZE -1.19E-11 3.13E-11 -0.380834 0.7076
AT 1.31E-10 3.13E-10 0.419542 0.6795
PROFIT -6.45E-12 9.38E-10 -0.006882 0.9946

R-s quared 0.195543 Mean dependent var 3.42E-12

Adjus ted R-s quared -0.016157 S.D. dependent var 7.67E-11
S.E. of regres s ion 7.73E-11 Akaike info criterion -43.52227
Sum s quared res id 1.14E-19 Schwarz criterion -43.22974
Log likelihood 550.0283 Hannan-Quinn criter. -43.44113
F-s tatis tic 0.923681 Durbin-Wats on s tat 1.945983
Prob(F-s tatis tic) 0.487231
 Descriptive Statistics (Model-3)
CAPEX CR TBQ CF
Mean 0.076331 2.751867 2.718247 0.273892
Median 0.002316 0.191651 1.249983 0.010452
Maximum 1.093977 27.07375 17.83575 2.303741
Minimum 1.99E-05 0.127020 1.109855 -0.005524
Std. Dev. 0.249008 6.964365 3.917522 0.710125
Skewness 3.395295 2.932912 2.867960 2.349254
Kurtosis 13.32952 10.03878 10.50141 6.583130
Jarque-Bera 159.1783 87.45032 92.88739 36.36959
Probability 0.000000 0.000000 0.000000 0.000000
Sum 1.908265 68.79668 67.95617 6.847304
Sum Sq. Dev. 1.488122 1164.057 368.3276 12.10267
Observations 25 25 25 25
 Correlation (Model-3)
CAPEX CR TBQ CF

CAPEX 1.000000 0.965290 0.374223 0.779200

CR 0.965290 1.000000 0.479964 0.768241

TBQ 0.374223 0.479964 1.000000 0.651798

CF 0.779200 0.768241 0.651798 1.000000

 Regression Analysis (Model-3)
Dependent Variable: CAPEX
Method: Panel Leas t Squares
Date: 03/16/17 Tim e: 14:29
Sam ple: 2011 2015
Periods included: 5
Cros s -s ections included: 5
Total panel (balanced) obs ervations : 25

Variable Coefficient Std. Error t-Statis tic Prob.

C 0.001810 0.013505 0.134009 0.8947

CR 0.031628 0.002491 12.69675 0.0000
TBQ -0.012740 0.003738 -3.408189 0.0026
CF 0.080741 0.028260 2.857040 0.0094

R-s quared 0.958303 Mean dependent var 0.076331

Adjus ted R-s quared 0.952346 S.D. dependent var 0.249008
S.E. of regres s ion 0.054358 Akaike info criterion -2.840807
Sum s quared res id 0.062050 Schwarz criterion -2.645787
Log likelihood 39.51009 Hannan-Quinn criter. -2.786717
F-s tatis tic 160.8773 Durbin-Wats on s tat 1.868949
Prob(F-s tatis tic) 0.000000
 Descriptive Statistics (Model-4)
AG CR TBQ CF
Mean 1.22E-12 2.751867 2.718247 0.273892
Median 1.02E-12 0.191651 1.249983 0.010452
Maximum 6.26E-10 27.07375 17.83575 2.303740
Minimum -8.52E-10 0.127020 1.109855 -0.005524
Std. Dev. 2.35E-10 6.964365 3.917522 0.710125
Skewness -1.180362 2.932912 2.867959 2.349254
Kurtosis 10.04028 10.03878 10.50141 6.583130
Jarque-Bera 57.43593 87.45032 92.88738 36.36959
Probability 0.000000 0.000000 0.000000 0.000000
Sum 3.05E-11 68.79669 67.95617 6.847304
Sum Sq. Dev. 1.32E-18 1164.057 368.3275 12.10267
Observations 25 25 25 25
 Correlation (Model-4)
AG CR TBQ CF

AG 1.000000 -0.400979 0.505137 0.019848

CR -0.400979 1.000000 0.479964 0.768241

TBQ 0.505137 0.479964 1.000000 0.651798

CF 0.019848 0.768241 0.651798 1.000000

 Regression Analysis (Model-4)
Dependent Variable: AG
Method: Panel Leas t Squares
Date: 03/15/17 Tim e: 23:56
Sam ple: 2011 2015
Periods included: 5
Cros s -s ections included: 5
Total panel (balanced) obs ervations : 25

Variable Coefficient Std. Error t-Statis tic Prob.

C -6.32E-11 2.72E-11 -2.324190 0.0302

CR -3.28E-11 5.01E-12 -6.544763 0.0000
TBQ 4.91E-11 7.52E-12 6.531757 0.0000
CF 7.71E-11 5.69E-11 1.355191 0.1898

R-s quared 0.809719 Mean dependent var 1.22E-12

Adjus ted R-s quared 0.782536 S.D. dependent var 2.35E-10
S.E. of regres s ion 1.09E-10 Akaike info criterion -42.88820
Sum s quared res id 2.51E-19 Schwarz criterion -42.69318
Log likelihood 540.1025 Hannan-Quinn criter. -42.83411
F-s tatis tic 29.78773 Durbin-Wats on s tat 2.887793
Prob(F-s tatis tic) 0.000000
 Limitation

 The sample size is too short to get effective result

 Lack of experience.

 There is a time limitation to do the project.

 Findings & Conclusion

o In this report we examined the influence of corporate governance on the financial

structure of listed banks.

o The objective of the study is to examine the factors of corporate Governances in

financial institutions by using, NEF, NDF, CAPEX, AG and eight other
independent variables developed to test which factor best explains corporate
Governances financial institutions.

o Findings of our result is given:

 Continue…
 For NEF (Dependent Variable)
Variables with its impact

 CR: No Significant Relationship

 MTB: Significant Relationship

 AT: Significant Relationship

 PROFIT: Significant Relationship

 SIZE: No Significant Relationship

 Continue…
 For NDF(Dependent Variable) :
 Variables with its impact
 CR: No Significant Relationship

 MTB: No Significant Relationship

 AT: No Significant Relationship

 PROFIT: No Significant Relationship

 SIZE: No Significant Relationship

 Continue…

 For CAPEX(Dependent Variables):

 Variables with its impact

 CR: Significant Relationship

 TBQ: Significant Relationship

 CF: Significant Relationship

 Continue…….
 For AG(Dependent Variables):

 Variables with its impact

 CR: Significant Relationship

 TBQ: Significant Relationship

 CF: No Significant Relationship