The Effect Of Ownership Structure And Corporate Governance On The Financial Performance Of Commercial Banks In Ethiopia

Abstract

1.   Commercial banks are formal financial institutions, whose core business is to encourage saving and easy access to credit by the public to the public. To achieve these objectives commercial banks should have sound ownership structure and corporate governance which enable them to improve their financial performance. Hence, the objective of this study was to identify the effect of ownership structure and corporate governance on the Financial Performance of the commercial banks in Ethiopia for 2013-2022. Due to the quantitative nature of the data, the study used a quantitative research approach and adopted an explanatory research design to examine the cause-and-effect relationship of financial performance and its determinants. Secondary data was analyzed using multiple regression models for the financial performance measured by Return on asset (ROA). Under this study, six independent variables such as ownership concentration, capital adequacy, debt-equity ratio, management efficiency, size of the audit committee, meeting frequency of board, and two control variables such as liquidity management, and size of Banks were included. The random effect model was applied to investigate the impact of explanatory variables on the financial performance of commercial banks in Ethiopia. Out of eight explanatory variables, three variables such as ownership concentration, capital adequacy, and gearing ratio, were positive and had a statistically significant effect on ROA, while the size of the audit committee was negative and had a statistically significant effect on ROA; because their p-value is less than 1%. However, management efficiency and meeting frequency of the board have statistically insignificant effects on ROA because their p-value is greater than 10%. The researcher recommends that Commercial Banks in Ethiopia should determine and better to strengthen such statistically significant variables to improve the performance of the Banks.