Theory and Empirical Evidence on Corporate Governance from Banking Sector of Pakistan

Abstract

Economic system appears to be best if they provide according to what people want. The purpose of this study is to investigate the effectiveness of corporate governance on financial efficiency of banks in Pakistan. The time period of this study is 2007 to 2012, and sample of 17 listed banks are selected and data is taken from their financial reports from their websites and Lahore Stock Exchange. Financial efficiency is measured by fix& random effects model techniques, for the measurement of dependent variable financial efficiency two proxies return on asset (ROA) and return on equity (ROE) are used. The independent variable includes Board size, Board meeting, Non-Executive directors, Bank size and leverage. The result of this research is consistent with the research conducted on corporate governance that shows significant positive impact on the financial efficiency of the bank. This study is contributed to the literature towards the corporate governance effect on financial performance of banks. Corporate governance provides rules & regulations to monitor and manage bank affairs, and it provide guidelines to board of directors how to run the affairs and how to increase shareholder values and increase bank efficiency. For the calculation of results STATA is used.