Corporate Governance, Profitability and Bank Capitalization Strategies: A Case of Banking Sector in Pakistan
- April 4, 2020
- Posted by: RSIS
- Categories: Commerce, IJRISS
International Journal of Research and Innovation in Social Science (IJRISS) | Volume IV, Issue III, March 2020 | ISSN 2454–6186
Zahra Jamil1, Zain Saeed Qureshi2
1,2M Phil Scholar, Department of Commerce, Bahauddin Zakariya University Multan, Pakistan
Abstract: The purpose of this study is to search out the association between the corporate governance, profitability and capitalization strategies of domestic financial sample of institution in Pakistan.
This study finds out the relationship between the corporate governance, profitability and capitalization strategies of financial institution in Pakistan. To evaluate results, data is collected from financial statement of schedule banks listed in Pakistan stock exchange. Data is collected from2006- 2018.This study find that corporate governance mechanism which favors the banks shareholder interest as associated with low capitalization strategies. A governance mechanism having the board independence, intermediate board size and CEO duality is considered share holder friendly corporate governance. Board size negatively affect the financial institutions capitalization. Effective board size is also negatively associated with financial institutions capitalization strategies. Corporate governance shift risk from shareholder of banks to debt holder. Low capitalization is favorable to the shareholder. This negative association represents that corporate governance is positively associated with banking sector instability. Corporate governance having disadvantage by increasing the risk of bank. This disadvantage is compensating with benefit that good governance that underperformance of the management has been restricted. CEO compensation negative associated with bank capitalization strategies. Higher risk taking is cases of low capitalization increased compensation of the CEO. Corporate governance code 2012 suggest that the chair of the board and CEO must be different person. Chairman of the board must be nonexecutive director and its role in the board leadership.
The profitability measures show the significant and positive relationship with the capitalization strategies. Some how the some of the capitalization strategies shows the negative and insignificant relationship with the profitability.
Payout decision mean distribution of residual earing to the owner of the financial institution. Payout is very critical in case of income shocks. Corporate governance negatively associated with payout polices of financial institutions. Financial institutions scale back dividend in case of negative income shock. Consequently, it’s concluded that good corporate governance favors the shareholder interest by decreasing capitalization strategies and aggressive payout of financial institutions has been restricted.
Keywords:- Bank capital, corporate governance, dividend payouts, profitability, executive compensation
