Research Proposal on Corporate Governance

Introduction

Corporate government is perceived as a crucial, significant, and most essential element for the proper operation of commercial banks. Modern academic research involving analysis of various policies have given a hint on governance implication to banks, both positive and negative especially to those banks vulnerable to financial crisis (Faleye, & Krishnan, 2017). There are also suggestions of possible means of overcoming the problems. The paper will be based on analysing the impact that appropriate risk management methods and strategies have on the financial institutions and the economy at large regarding stability. Analysis of banks involves grouping them concerning banks with strong corporate management, banks with average board size and banks with a separation of the chairman and the Chief Executive Officer of the board (Haan, & Vlahu, 2016). The primary goal is to develop various perspectives of governance structures that influence risk-taking and loan performance of commercial banks.

Keywords: risk-taking, commercial banks, corporate governance.

Objectives

Main Objective

To investigate the extent of the effect of corporate governance on risk-taking and loan performance of commercial banks.

Specific Objective

To measure the quality of corporate governance.

To measure the extent of bank risk-taking.

To elaborate explanatory variables.

Methodology

For proper evaluation of corporate governance and how it affects loan performance and risk-taking of commercial banks, the research will adopt a detailed design. The structure of the model incorporates data collection to assist in assessing the current trend s in the topic. The model will provide enough opportunity for the respondents involved give sufficient information on the subject of interest to help in achieving precision in results. The structure of the design will include both qualitative and quantitative data enabling a large variety of information. The plan will also involve the analysis of commercial banks from the period of 2008 to 2018 period to get informed on the change in trends.

Measurement of Corporate Governance

Regarding measurement of the quality of corporate governance, the design will involve the development of parsimonious index. The algorithm will incorporate three components of corporate governance, which will include efficiency of external audit, ownership hierarchy, and the board governance. Bank board should have the ability to manage and monitor bank risks effectively. It means that banks with active boards for advisory purposes and monitoring works are in a better position concerning governance. The incentive of top management to take risk should also be put into consideration alongside board governance. Director may tend to take a minimal risk in situations where there have minority shares of the bank ownership under their names.

Measurement of Bank Risk

The measurement the extent of the bank risk-taking will involve the use typical measure bank risks. The method will include the use of standard deviation from both the return on assets and return on equity. A minimum of two proxies of bank risk will be used to verify the extent of the impact of active corporate governance on the scale of the bank taking risk. The principle estimate of bank risk will be the z-score.

Measurement of Loan Performance

To assess the effects of corporate governance on loan performance of commercial banks, the research will adopt ad descriptive design. The design will involve the collection of data by allowing respondents to give relevant information in relation to the subject. Primary data will be collected by the use of questionnaires while secondary data will be obtained from financial reports and statements of the commercial banks listed in the population. Strata version 13 will be applied in sorting the data obtained to generate a relationship between variables. Analysis process will involve both inferential and descriptive statistics. Descriptive statistics will involve the use of percentages, means, frequencies and standard deviation while the inferential method will incorporate multi-regression and Karlpearsons correlation coefficient to develop a relation between loan performance indicator and variables representing corporate governance.

Literature Review

Research on banking in the recent past have been centred on assessing the role of corporate governance in the banking industry. Most studies indicate that disorganization in the corporate governance significantly influences the extent of banks to take a risk. There is also an explanation of the need for well-structured management to assist in the mitigation problems experienced by stakeholders in risk-taking (Rooney & Cuganesan, 2015). There exists a strong relation between bank risk-taking and corporate governance as evident in most of the characteristics such external monitoring, board functionality and ownership hierarchy.

Problem Justification

It is essential to expand understanding on corporate governance in the modern economy by examining the banking industry. That banking industry majorly comprises of enormous multinational and state-owned banks that operate under strict monitoring and regulation of the government policies. It therefore means that the operation of the commercial banks is highly dependent on the structure of the corporate governance. Eliminating flaws in the corporate governance will improve services of the banks concerning loans and risk-taking.

Significance of Study

Corporate governance plays a very important role in the success of commercial banks. Researching in the topic is important in providing vast knowledge to assist in proper implementation of policies. The benefits will further be evident in the larger banking industry. Sufficient knowledge is also required to help in the formulation of and defining the role of the board of governance (Zagorchev & Gao, 2015). The data collect will add more information to the debate on corporate governance structure and system including factor such as size and professional qualifications. The information from the research will be helpful in answering some specific questions in the banking industry. It will create an understanding of whether there exist positive relation between bank performance and the frequency of board meetings by considering the preceding financial information. The study will also help relate bank performance and the number of institutional investors' shares. The report by collecting data on board members' remuneration will help to verify if there exist a relationship between compensation of the executive members and bank performance. The study will avail information relevant in determining whether the ratio of outside directors to total director influence the performance of the bank and also suggest possible ways of structuring the board of governance.

Potential Research Challenges

Selection of the right methodology

It is difficult tom decide on the methodology since the research will involve several independent financial institution which may not be comfortable with certain issues the drafted method of data collection.

Assembling a research team

It is difficult to get the perfect and qualified individuals to assist in the research project such as the interviewing team.

Finding the study participants

The intended people to assist in providing the relevant data may be unwilling to provide their assistance.

Getting institutions to participate

The banks may be reluctant to get involve in the study especially since in involves analysis of their financial records.

Reference

Rooney, J., & Cuganesan, S. (2015). Leadership, governance and the mitigation of risk: a case study. Managerial Auditing Journal, 30(2), 132-159.

Faleye, O., & Krishnan, K. (2017). Risky lending: Does bank corporate governance matter?. Journal of Banking & Finance, 83, 57-69.

Haan, J., & Vlahu, R. (2016). Corporate governance of banks: A survey. Journal of Economic Surveys, 30(2), 228-277.

Zagorchev, A., & Gao, L. (2015). Corporate governance and performance of financial institutions. Journal of Economics and Business, 82, 17-41.