Board characteristics, audit committee attributes and firm performance: empirical evidence from emerging economy

Abstract

PurposeThis study is designed and directed to analyze the effect of board characteristics and audit committee attributes on the firm performance of publicly listed commercial banks of Bangladesh.Design/methodology/approachThirty publicly listed commercial banks of Dhaka Stock Exchange (DSE) have been taken as sample for this study. Data have been collected from annual reports between 2011 and 2017 of the assessed banks. Pooled OLS model has been used for running regression model of this study.FindingsBoard independence has a negative and significant relationship with ROA and Tobin's Q. However, Board Independence has a positive and significant relationship with Stock Return. On the other hand, Board Diversity has a negative and significant relationship with ROA and ROE, which implies inefficiency of diversified board members in the context of Bangladesh. Family duality has a positive and significant relationship with ROA and a negative and significant relationship with Stock return. Board Meeting has a positive and significant relationship with ROA. Audit Committee Size has a negative and significant relationship with Tobins' Q. Independence of audit committee chairman has a negative and significant relationship with Tobin's Q and Stock Returns. Presence of non-executive directors and number of audit meetings have no significant relationship with any of the predicted variables.Research limitations/implicationsAmong all variables of the board characteristics, role of independent directors and participation of female directors have conflicting results in this study. This has raised a question about the fair appointment independent directors and their objective view on the board. Female directors' role is not convincing in the context of Bangladesh as most of the commercial banks are family-owned. Policymakers can tighten and supervise the appointment of independent directors to ensure good governance in the banking sector. Moreover, role of audit committee and independence of audit committee chairman have generated conflicting results in terms of market-based performance measure.Originality/valueBanking sector of Bangladesh experiences huge corruption in the form of excessive NPLs and poor management quality which results in low profit for the firm. This study has explored the problems of management quality and flaws of audit committee which is hampering overall growth of banking industry. Improvement of independent directors' appointment and audit committee formation and reporting will certainly help banking industry of Bangladesh to improve overall performance.