An index to study corporate governance in banks in India

Abstract

There are many factors that affect corporate governance (CG). It is highly difficult to comprehend corporate governance and define it. Yet, research is imperative to understand the changing specific needs of good corporate governance practices and the impact of such practices. As banks have special governance needs, in this study the corporate governance of banks in India has been studied with the help of corporate governance index (GCI) especially designed for banks. Following the method used by Ararat, Black, and Yurtoglu (2017) to investigate the effectiveness of corporate governance, the index was divided into six sub-indices and to test the index it was used to find the correlation of CG practices with the banks profitability measured in terms of return on assets (RAO) and net interest margin (NIM) as dependent variables. The fixed regression model was run to know the relationship between the sub-indices and the dependent variables. Apart from the CG index, capital adequacy ratio (CAR) and Net NPA ratio were taken as independent variables. A weak correlation was found between CG and ROA and NIM that contributes to the findings of Fallatah and Dickins (2012).