CORPORATE GOVERNANCE, RISK MANAGEMENT, AND BANK PERFORMANCE: EVIDENCE FROM COMMERCIAL BANKS OF ETHIOPIA

Abstract

This study intended to examine the effect of corporate governance and risk management on bank performance using 10 years data from the year 2010 to 2019 which total populations consists of 17 banks operating in Ethiopia and using purposive sampling techniques select a sample of 13 Ethiopian commercial banks. The dependent variableROA and ROE were used as the bank performance indicators. Besides the independent variable corporate governance incorporated board size, board gender diversity, audit committee size and frequency of board meeting. In addition the risk management proxies were credit risk, liquidity risk and operational risk. The Explanatory research design was employed. The study used secondary source of data collected from NBE. The study used panel data with random and fixed effect regression model analysis for ROA and ROE respectively by using Eviews 9, 2021 software in drawing conclusion about the study. The finding shows that board size and board gender diversity had insignificant relation with ROA and ROE. But the frequency of board meeting was negatively influence the bank performance. While, the audit committee size was negative significant effect on the ROE: but insignificance effect on ROA. The risk management proxies liquidity risk andoperational risk negatively affect the bank performance. But the credit riskshow insignificant relation with bank performance. Furthermore, the results of effect of corporate governance and risk management on the bank performance together shows that board sizeand frequency of board meeting were positively affect the bank performances. Whereas audit committee size, liquidity risk and operational risk were negatively associated with bank performance but, the board size and credit risk failed to show a significant relation with bank performance. Finally the researcher recommended that, based on the significant effect of the corporate governance mechanism and risk management factors on the performance of the bank, the Ethiopian commercial banks should construct a corporate structure technically and as per the directives and also managing the banks risk effectively in order to better attainment of the objectives of the bank and to encourage their performances.