Internal Corporate Governance in an Emerging Economy : Impact on the Performance of Financial Institutions in Bangladesh

Corporate Governance (CG) is the widest control mechanism comprising internal and external elements to ensure better performance of companies. This study focuses on the two internal CG mechanisms board of directors (board) and ownership structure of the listed Financial Institutions (FIs) in an emerging economy namely Bangladesh. Prior research literatures provide inconclusive results regarding the relationship of board and ownership with the performance of companies. Hence, the study took an attempt to investigate the board composition and ownership pattern of FIs and to find the degree of influence of these crucial CG mechanisms on company performance. Using the data over the period 2003-2007, the results indicate the size of the board and gender diversity in the board are positively influences the accounting based performance. In addition, the study observes the negative impact of outside directors (proportion of independent directors and non-independent and non executive directors) on the accounting based performance measures. This result strongly supports the stewardship theory.