International Journal of Management, Accounting and Economics

Vol. 8, No. 1, January, 2021

ISSN 2383-2126 (Online)
© Author(s), All Rights Reserved www.ijmae.com

Original Research

Board Characteristics and Firm Performance:

Evidence from the Listed Non-Banking Financial
Institutions of Bangladesh

Raihan Sobhan1
Department of Business Administration, University of Asia Pacific
Dhaka, Bangladesh

Abstract
The main objective of this study is to find out the effects of board
characteristics on firm performance in the listed companies of non-banking
financial institutions industry of Bangladesh. This study has considered five
board characteristics namely board size, the proportion of independent directors,
the proportion of female directors, the number of board meetings and percentage
of directors’ ownership. ROA has been taken as the performance indicator. The
regression results show that board size and female directors are positively and
significantly related to firm performance. On the other hand the proportion of
independent directors, the number of board meetings and the percentage of
directors’ ownership do not have any significant impact on firm performance.
The findings of this study will help the regulators and policymakers to
understand the existing weakness of corporate governance structure in the
financial institution industry and will aid in their quest for harmonizing the
practice of corporate governance of Bangladesh with that of developed countries.

Keywords: Board Characteristics; Firm Performance; Corporate

Governance of Bangladesh; Financial Institutions

JEL Classification Numbers: G23, G34, M14

1
Corresponding Author’s Email: [email protected]

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Introduction
Corporate governance has emerged as one of the most talked-about topics in the area
of research over the past few decades. After the failure of some big companies like Enron,
HIH, WorldCom, OneTel, the effectiveness of corporate governance structure has often
been questioned. In order to increase the efficiency of the corporate governance, many
acts and guidelines like Cadbury Report (1992), Sarbanes-Oxley Act (2002), CLERP 9
(2001), Ramsay Report (2001), Organization for Economic Development (OECD) Code
(1999) have been introduced around the world. Bangladesh has been following the
footsteps of developed countries to align its corporate governance structure with that of
developed countries. Bangladesh introduced its first guidelines regarding corporate
governance in 2006. Later in 2012, Corporate Governance Guidelines (CGG) were
introduced. Recently the Corporate Governance Code (CGC) was introduced in 2018.
However, whether the guidelines derived from developed countries can be successfully
adopted in the context of Bangladesh remains the major issue.

The main purpose of this study is to analyze the effects of the characteristics of a board
on firm performance in the listed companies from the financial institution industry of
Bangladesh. Over the past few decades, the world has witnessed some of the biggest
corporate failures and financial crises. In most of the cases, the major reason for the
collapse was the existence of poor corporate governance. And board characteristics are
important elements of corporate governance. Given the importance of good corporate
governance in preventing corporate failures, the relationship between board
characteristics and firm performance has recently drawn much attention to researchers
and policymakers (Brown et al., 2011; Samaha et al., 2012).

The financial institution industry has been considered in this study for several reasons.
The Non-Banking Financial Institutions NBFIs play an important role in the economy
just like the commercial banks. However, the current situation of NBFIs is not quite well.
The practice of granting loans imprudently has increased resulting in a huge amount of
bad debts and deteriorating performance. Poor governance has led to the first liquidation
of a company in this sector. Besides, most of the previous studies have focused on the
banking and manufacturing industries. For these reasons, the financial institution industry
has been selected for the study.

This study will contribute to the literature in several ways. Firstly, this study will
contribute to the field of corporate governance by assessing the characteristics of boards
in the financial institutions industry. Secondly, this study will provide a precise scenery
about the current performance of the firms in the financial institutions sector by analyzing
an operating performance indicator (ROA). Thirdly, the findings of this study will help
the readers understand which characteristics of the board affect a firm’s performance to
what extent and how an effective board can boost a firm’s performance. Finally, this study
will fill the void in the existing literature as this is most probably the first study conducted
in the financial institutions regarding the impact of board characteristics on firm
performance.

The rest of the paper is organized in the following manner: Section 2 discusses the
theoretical framework based on which the study has been conducted. Section 3 discusses

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© Author(s), All Rights Reserved www.ijmae.com

the literature review and hypotheses development used in the study. Section 4 shows the
research methodology of the study. Section 5 represents the analysis of the results from
the regression models. Finally, Section 6 draws a conclusion of the study and provides
some recommendation based on the findings.

Theoretical Framework
One of the most important theories that can be linked to corporate governance
mechanism in a country is agency theory. According to this theory, agents are engaged
by principals for performing some services on the behalf of the principals (Jensen &
Meckling, 1976). This theory also states that the agents or managers can sometimes
overlook principal’s interest to obtain their interest that may result in agency cost.
Corporate boards can play an important role in mitigating this agency cost by trying to
align the interest of the principal and the agent (Rose, 2005). The corporate board
monitors and provides strategic guidelines to the management and for this it is regarded
as a primary mechanism of corporate governance (Brennan, 2006). A board works for
enhancing the performance of a firm and enacting responsibilities and duties that are
legally vested (Zahra & Pearce II, 1989).

Another theory that can be linked to board characteristics is resource dependence

theory. According to this theory, the behavior of an organization can be affected by some
external resources. And different components of corporate governance mechanism can
aid in connecting the organization and the external resources for increasing organization’s
performance (Pfeffer, 1973). For example, the immense experience and skills of board of
directors, particularly independent directors can help a company improve its performance
(Haniffa & Cooke, 2002). Besides, the inclusion of these directors in the board can
enhance the reputation of the company and build strong business network (Haniffa &
Hudaib, 2006). Finally, the directors may have personal relationship with influential
people that can be used to obtain important information from political elites and other
organizations. According to Nicholson & Kiel (2007), there is a positive relationship
between outside resources and corporate performance.

Literature Review and Hypotheses Development

Board Size
Board size is one of the most important characteristics of a board that can have a
significant impact on firm performance. Prior studies have found some mixed results
regarding the effect of board size on performance. Rahman & Saima (2018) conducted a
study on the listed manufacturing companies of Bangladesh and found a significant and
positive relationship between board size and firm performance. Larger boards can add
versatility to the company which can improve the performance significantly. Previous
studies have concluded that larger board size has a positive impact on firm performance
as it equips more expertise and can make effective strategic decisions (Amer et al., 2014;
Kutum, 2015; Muttakin et al., 2012; Kiel & Nicholson, 2003).

However, some other studies have found a negative relationship between board size
and firm performance. Guest (2009) conducted a study on 2746 listed firms in the UK

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and found that board size is negatively related to ROA, Tobin’s Q and share returns.
According to this study, larger boards will result in poor communication and decision
making which will lower the performance of the firm. Besides, Wu (2004) and Yermack
(1996) have found that smaller boards are more effective compared to the larger ones as
they improve coordination among the board members and fastens the decision making
skill. Rashid et al. (2010) found that board size negatively affects ROA but positively
affects Tobin’s Q of a firm. However, some studies did not find any significant
relationship between board size and firm performance (Masum & Khan, 2019; Al-Matari
et al., 2012; Rouf, 2011). Based on the prior studies, the following hypotheses can be
drawn:

H1 (a): Ceteris paribus, there is a positive association between board size and firm
performance.

H1 (b): Ceteris paribus, there is a negative association between board size and firm
performance.

Independent Directors

Independent directors are appointed from outside the organization to monitor the
activities of the managers for maintaining shareholders’ interests. According to Fama &
Jensen (1983), a higher proportion of independent directors in the board will result in
effective monitoring of the activities performed by the managers. From the perspective
of agency theory, corporate performance can be enhanced by including more independent
directors on the board (Ramdani & Witteloostuijn, 2010). Bhabra & Li (2011) conducted
a study on both state-owned and non-state-owned firms of China and found that there was
a significant increase in firm performance due to the improvement of board independence.
Independent directors also have the responsibility to monitor firm performance (Rashid
et al., 2010). For this, they can raise questions about information asymmetry, recommend
compensation structure for executives and can also recommend the dismissal of the CEO
if the expected performance is not achieved (Hermalin & Weisbach, 2003). Most of the
studies have found a positive relationship between board independence and firm
performance (Rahman & Saima, 2018; Muttakin et al., 2012; Rouf, 2011).

However, in the context of Bangladesh, there arises a question about the true
independence of the independent directors due to concentrated family ownership and poor
regulatory structure. As inside directors are the ones who are engaged in operational
activities of the organization, they know the organization well than the independent
directors do. So there exists information asymmetry between inside directors and outside
directors (Nicholson & Kiel, 2007). Other studies did not find any significant relationship
between board independence and firm performance (Rashid et al., 2010; Amer et al.,
2014; Masum & Khan, 2019). Based on the above analysis, the following hypothesis can
be drawn:

H2: Ceteris paribus, there is a positive association between proportion of independent

directors in the board and firm performance.

Female Directors

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The number of females participating in the board of directors in different sectors is

increasing rapidly all over the world. Female directors are considered to be hard workers,
have good communication skills and are active in fulfilling commitment (Robinson &
Dechant, 1997). Gender diversity is positively related to effective board room debate and
coordination among board members (Hillman et al., 2007). Female directors can promote
new ideas and skills which can add value to the firm (Boyle & Ji, 2013). Other studies
also found a positive and significant relationship between female directors and firm
performance (Muttakin et al., 2012; Bear et al., 2010; Smith et al., 2006).

However, many studies have concluded that there is no significant relationship

between female directors and firm performance (Rahman & Saima, 2018; Masum &
Khan, 2019; Yasser, 2012). Most of the female directors are appointed based on family
ties and these appointments are not done based on educational background or expertise in
work (Rahman, 2016). Besides, female directors, who are from non-traditional
backgrounds and are in a socialization process, try to agree with the other members and
adopt their ideas instinctively (Rose, 2007). Based on the above discussion the following
hypothesis can be drawn:

H3: Ceteris paribus, there is a positive association between proportion of female

directors in the board and firm performance.

Board Meetings

An organization’s board meeting held by its directors is a perfect platform to discuss

operational issues and take proper decisions based on the uniform consent of the
members. When executives have the responsibility of being present in a meeting, they are
allowed to vote on important decision-making plans (Ronen & Yaari, 2008). According
to Lorsch & Maclver (1989), frequent board meetings will increase the likelihood that the
board will perform its duty sincerely to protect the interest of the shareholders. Studies
conducted by Al-Daoud et al. (2016), Paul (2017) and Amer et al. (2014) found a positive
association between numbers of board meetings held and firm performance.

Hanh et al. (2018) conducted a study on 94 listed firms in Vietnam and found a
negative relationship between board meetings and firm performance. The study suggests
that only the frequency of board meetings is not itself a good indicator. The quality of
those meetings is an important factor that can influence firm performance. On the other
hand some studies did not find any significant relationship between these two variables
(Kutum, 2015; Qadorah & Fadzil, 2018). Based on the prior studies the following
hypothesis can be drawn:

H4: Ceteris paribus, there is a positive association between the frequency of board
meetings and firm performance.

Directors’ Ownership
Berle & Means (1932) conducted a study to explore the relationship between
ownership structure and firm performance. The study suggested that a firm should
separate its ownership from control if it wants to go public. This was supported by Fama

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& Jensen (1983) who added that separation of ownership and control improves
professionalism through firm-specific knowledge and managerial proficiency. However
a contradictory result was found by Jensen & Meckling (1976) who suggested that
separation of ownership and control will result in conflict of interest. They suggested that
alignment of interest can be brought if the agents’ ownership in the firm is increased.

Board members who own shares of the organization tend to be more active and monitor
the management effectively for the reduction of agency cost. More shareholdings by the
directors implies their greater interest in the firm. As a result, they will try to monitor the
activities of the management more carefully to protect their interest. Masum & Khan
(2019) conducted a study on 101 listed firms of Bangladesh and found a significant and
positive association between board members’ ownership and firm performance.
According to the study, directors’ ownership helps to align the interest of the shareholders
and the management. Besides, studies conducted by Abbas et al. (2013) and Fauzi &
Locke (2012) found a positive relationship between directors’ ownership and firm
performance. Based on the above discussion, the following hypothesis can be drawn:

H5: Ceteris paribus, there is a positive association between directors’ ownership and
firm performance.

Methods

Sample Selection and Data Collection

Table 1 List of Sample Companies

Name of the Company Name of the Company

1. Bay Leasing & Investment Limited 11. International Leasing & Financial Services Ltd.
2. Bangladesh Finance and Investment Co. Ltd. 12. IPDC Finance Limited
3. Bangladesh Industrial Fin. Co. Ltd. 13. Islamic Finance & Investment Ltd.
4. Delta BRAC Housing Finance Corp. Ltd. 14. Lanka Bangla Finance Ltd.
5. Fareast Finance & Investment Limited 15. MIDAS Financing Ltd.
6. FAS Finance & Investment Limited 16. National Housing Fin. and Inv. Ltd.
7. First Finance Limited 17. Phoenix Finance and Investments Ltd.
8. GSP Finance Company Limited 18. Prime Finance & Investment Ltd.
9. Investment Corporation Of Bangladesh 19. Union Capital Limited
10. IDLC Finance Ltd. 20. United Finance Limited

For this study, a sample of 20 financial institutions listed in Dhaka Stock Exchange
(DSE) has been selected for the period of 2012 to 2018. At present, there are 23 listed
financial institutions in DSE. However, one of the companies has recently been declared
bankrupt. Among the rest of 22 companies, the annual reports of 2 companies were not
available. The sample size was limited to 20 companies for 7 years, resulting in 140 firm-
years. Due to unavailability of 4 annual reports, the final sample size was narrowed down
to 136 firm-years. All of the data were taken from secondary source (annual reports).
Annual reports are collected from the websites of respective companies. The reports, that
were not available in the company’s website, were collected from Bangladesh Securities

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and Exchange Commission (BSEC). The list of sample firms taken for the study is given
in Table 1.

Research Model

For this study, a pooled cross-sectional method is used. The hypotheses are tested
using a regression equation based on ordinary least square (OLS) method. The following
regression equation is drawn by keeping consistency with the studies conducted by
(Masum & Khan, 2019; Rahman & Saima, 2018; Amer et al., 2014):

ROA = α + ß1 LNBDS + ß2 IND + ß3 FD + ß4 BDMEET + ß5 DIROW (1)

+ ß6 LEV + ß7 LNFSZ + ß8 LNAGE + ε

In the above equation, return on assets (ROA) has been taken as the performance
indicator of the sample firms (Al-Matari et al., 2012; Amer et al., 2014; Rahman & Saima,
2018). The definitions of all the variables used in the equation are presented in Table 2.

Table 2 Definition of Variables

Expected
Variable Name Symbol Explanation
Relation
Firm Performance (Dependent Variable)
Ratio of Net Profit Before Tax to Average
Return on Asset ROA
Total Assets
Board Characteristics (Independent Variables)
Board Size LNBDS Natural Logarithm of Board Size +/-
Independent Directors IND % of Independent Directors in a Board +
Female Directors FD % of Female Directors in a Board +
Board Meetings BDMEET No. of board meetings held in a year +
Directors’ Ownership DIROW % of Directors’ Ownership +
Control Variables
Ratio of Book value of Total Debt to
Leverage LEV +/-
Total Assets
Natural Logarithm of Book Value of Total
Firm Size LNFSZ +
Assets
Natural logarithm of number of years
Firm Age LNAGE +
since firm’s inception.

Result and Discussions

Descriptive Statistics

Table 3 represents the descriptive statistics for the dependent and independent
variables. From this table, it can be seen that the mean ROA is 1.67% which can be
considered very poor. The minimum ROA is -70.24% due to a huge loss faced by one of
the sample firms resulting in negative equity whereas the maximum is 11.33%.

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Among the independent variables, the board size has a mean value of almost 12 (11.26)
with a minimum of 7 members and a maximum of 17 members. The mean value of the
proportion of independent directors is 20.60% which is slightly higher than the minimum
requirement of 20% (Corporate Governance Code, 2018). The minimum value is 0%
which means in some firms there were no independent directors. The proportion of female
directors has a mean value of 13.21% with a minimum value of 0% and a maximum value
of 33.33%. The average board meetings held by the sample firms were almost 12 (11.48).
The percentage of directors’ ownership has a mean value of 44.37% with a minimum
value of 0% and a maximum value of 90.31%. Among the three control variables,
leverage has a mean value of 83.09%, firm size has a mean value of BDT 26437.76
million and firm age has a mean value of 21.22 years.

Table 3 Descriptive Statistics

Variable Name Symbol Obs. Mean Med SD Min Max

ROA roa 136 1.67 2.31 6.68 -70.24 11.33

Board Size bdsz 136 11.26 11.00 1.82 7.00 17.00
Independent Directors (%) ind 136 20.60 20.00 9.86 0.00 57.14
Female Directors (%) fd 136 13.21 11.11 9.38 0.00 33.33
Board Meetings bdmeet 136 11.48 11.00 5.37 4.00 30.00
Directors' Ownership (%) dirow 136 44.37 43.12 18.06 0.00 90.31
Leverage (%) lev 136 83.09 85.87 12.85 39.18 169.17
Firm Size (in millions) fmsz 136 26437.76 15933.11 31241.33 3057.66 175382.70
Firm Age fmage 136 21.22 19.50 6.70 11.00 42.00

Bivariate Analysis

Table 4 Correlation Matrix

roa lnbdsz ind fd bdmeet dirow lev lnfmsz lnfmage

roa 1.000
lnbdsz 0.029 1.000
ind -0.293** -0.245** 1.000
fd 0.065 -0.121 0.292** 1.000
**
bdmeet -0.064 0.142 -0.284 -0.295** 1.000
**
dirow -0.029 0.306 0.136 -0.062 -0.203* 1.000
lev -0.643** 0.123 0.160 0.140 -0.023 0.088 1.000
** *
lnfmsz 0.127 -0.120 -0.239 -0.136 0.113 -0.217 0.072 1.000
lnfmage 0.092 -0.089 -0.147 -0.037 0.192* -0.302** -0.115 0.604** 1.000
*p < 0.05, **p < 0.01

Pearson’s correlation matrix is represented in Table 4. The matrix shows that board
size, the proportion of female directors, firm size (ln) and firm age (ln) all are positively
correlated to ROA. However, the correlation is not significant for any of the variables.

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The proportion of independent directors, the number of board meetings, the percentage
of directors’ ownership and leverage are negatively correlated to ROA. Among these
variables, the correlations of the proportion of independent directors and leverage to ROA
are statistically significant.

Table 5 represents the variance inflation factor (VIF) for the independent variables and
control variables. The VIF test is performed to check whether there is any presence of
multicollinearity problems among the variables in the regression model. If the mean VIF
is more than 10, it is an indication of the presence of a multicollinearity problem (Neter
et al., 1989). On the other hand, if the mean VIF is less than 1, there is a possibility of
bias in the regression equation (Bowerman & O'Connell, 1990). In this study, the mean
VIF is 1.4 which indicates the absence of both multicollinearity problem and bias. It is
consistent with the studies conducted by (Rahman & Saima, 2018; Masum & Khan,
2019).

Table 5 Variance Inflation Factor (VIF)

Variable VIF 1/VIF

Board Size (ln) 1.31 0.76173
Independent Directors (%) 1.36 0.73434
Female Directors (%) 1.22 0.81703
Board Meetings 1.26 0.79464
Directors' Ownership (%) 1.32 0.75826
Leverage 1.15 0.86733
Firm Size (ln) 1.81 0.55113
Firm Age (ln) 1.78 0.56211
Mean VIF 1.4

Multivariate Analysis

The result of the regression analysis is presented in Table 6. From the results, it can be
seen that board size is positively and significantly related to ROA in both OLS and
random effect regression models. It is consistent with some other studies and implies that
larger boards are more effective in improving firm performance in the financial institution
industry (Rahman & Saima, 2018; Amer et al., 2014; Muttakin et al., 2012). So the
Hypothesis-1(a) can be accepted.

According to the regression output, there lies a negative but insignificant relationship
between the proportion of independent directors and firm performance in the model. This
does not support Hypothesis-2. However, it is consistent with previous studies (Rashid,
2018; Nguyen et al., 2017; Dalton & Daily, 1999). This is probably due to the existence
of information asymmetry and expertise disadvantage. Independent directors generally
have less information about the company compared to insiders. Besides inside directors
have more experience and knowledge about the company they work for compared to

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independent directors. As a result, independent directors tend to have little influence on

the operating matters of a company.

The study found a positive and significant relationship between the proportion of
female directors and ROA in both methods used. Robinson & Dechant (1997), Muttakin
et al. (2012) and Bear et al. (2010) found a similar relationship between these two
variables. So it supports Hypothesis-3.

There is a negative but statistically insignificant relationship between the number of

board meetings and ROA. This is also the same in case of director’s ownership and ROA.
As a result, it does not support Hypothesis-4 and Hypothesis-5.

The impact of control variables on firm performance is also shown in Table-7.

Leverage is negatively and significantly related to ROA in both OLS and random effect
regression. Firm size has a positive and significant relationship with ROA. Finally, firm
age does not have any significant relationship with firm performance in any of the models.

Table 6 Regression Output with OLS and RE Model

Model-1 (ROA)
Variable Symbol Expectation
OLS RE
*
Board Size lnbdsz +/- 0.0470 0.0102*
(0.099) (0.096)
Independent
ind + -0.1408 -0.1650
Directors (%)
(0.203) (0.202)
Female Directors
fd + 0.1776*** 0.2425***
(%)
(0.000) (0.000)
Board Meetings bdmeet + -0.0010 -0.0009
(0.249) (0.381)
Directors'
dirow + 0.0165 0.0123
Ownership (%)
(0.512) (0.679)
Leverage lev +/- -0.3637*** -0.3695***
(0.000) (0.000)
Firm Size (in
lnfmsz + 0.0219*** 0.0321***
millions)
(0.001) (0.000)
Firm Age lnfmage + -0.0324 -0.0411
(0.179) (0.112)

Observation 136 136

R-square 0.5469 0.5319
*p < 0.10, **p < 0.05, ***p< 0.01

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Additional Analysis
Table 7 provides the regression result of an additional analysis conducted that
considered the year dummy. The year dummy model is used to explore whether there is
any significant effect of any particular year on the regression models. From the table, it
can be seen that board size is significantly and positively related to ROA like the previous
two methods. However, the proportion of female directors have no significant impact on
firm performance unlike the results found in the previous two methods. The proportion
of independent directors, the number of board meetings and the percentage of directors’
ownership have similar results to OLS and random effect. Among the control variables,
all the results are consistent with previous methods.

Table 7 Regression Output Considering Year Dummy

Variable Symbol Expectation Model-1 (ROA)

Board Size lnbdsz +/- 0.0519*
(0.068)
Independent Directors (%) ind + -0.1738
(0.201)
Female Directors (%) fd + 0.1973
(0.125)
Board Meetings bdmeet + -0.0007
(0.390)
Directors' Ownership (%) dirow + 0.0278
(0.273)
Leverage lev +/- -0.3962***
(0.000)
Firm Size (in millions) lnfmsz + 0.0193***
(0.003)
Firm Age lnfmage + -0.0449
(0.116)

Year Dummy? Yes

Observation 136
R-square 0.5950
*p < 0.10, **p < 0.05, ***p< 0.01

Conclusion
The study examined the relationship between board characteristics and firm
performance. Five characteristics namely board size, the proportion of independent
directors, the proportion of female directors, number of board meetings and percentage

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of directors’ ownership were considered. ROA was considered as the performance

indicator of sample firms. The study shows that the operating performance of the sample
firms in the financial institution industry is not satisfactory at all as the mean ROA is
1.67% only.

The study found a positive and significant relationship between board size and ROA
which means that larger boards can improve the operating performance of firms in the
financial institution industry. Boards with more members can experience the benefits of
diversified expertise and are less likely to be dominated by management. This will result
in enhanced performance by the firms.

An interesting finding of this study is the existence of a negative relationship between

independent directors and firm performance. Although the relationship is insignificant,
this finding raises the question of the true independence of the independent directors.
There is a possibility that independent directors are selected from those people who have
personal relationships with or are close to the CEO or other insiders of the company
(Finkelstein & Hambrick, 1996). In Bangladesh, independent directors are appointed on
the basis of guidelines provided in the Corporate Governance Code (CGC) 2018. The
CGC 2018 requires independent directors to be expert and experienced in the relevant
field. However, there is a sub-section that allows the relaxation of these requirements
subject to the Commission’s approval. This leaves the door open for any person to be an
independent director of a company. Besides, independent directors often have less
knowledge about the company compared to inside directors. They often play the role of
advisors instead of adding economic value to the organization (Rashid et al., 2010).

The proportion of female directors on the board is positively related to ROA. It implies
that the addition of female directors in the board can increase the operating performance
of the firm as they are hard workers and bring coordination in the board. Finally, the
number of board meetings and the percentage of directors’ ownership does not have any
significant impact on firm performance according to the study.

However, there are some limitations of this study. Firstly, this study used only 136
firm-years as the sample size. Larger sample size would provide more comprehensive
results. Secondly, the study did not include some board characteristics like the number of
foreign directors, CEO tenure, CEO duality etc. in the regression model. Finally,
performance indicators like Tobin’s Q, return on equity (ROE), growth rate, earnings per
share (EPS), share return were not considered in this study.

Based on the analysis and findings of the study, some recommendations can be
provided. At first, the current situation of the financial institution sector should be
improved. There exist severe mismanagement and a tendency of sanctioning imprudent
loans by the NBFIs of Bangladesh which is deteriorating their performance. The
regulatory body needs to take effective and timely measures to bring back the glory days
to the industry. In order to minimize the existing information asymmetry, the NBFIs
should be encouraged to increase the number of voluntary disclosures and restrict any
kind of insider trading. Another important issue is the appointment of independent
directors on the board. Regulatory authorities like BSEC and Bangladesh Bank needs to
ensure that the true independence of the appointed independent directors is maintained.

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Vol. 8, No. 1, January, 2021
ISSN 2383-2126 (Online)
© Author(s), All Rights Reserved www.ijmae.com

Although it is a very challenging thing to do given the existing situation in Bangladesh,

strict enforcement of laws and proper monitoring can help in this regard. Finally, the
corporate governance structure should be reformed based on the existing corporate culture
and business environment of Bangladesh instead of merely imitating the corporate
governance pattern of other countries.

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HOW TO CITE THIS ARTICLE

Sobhan, R. (2021). Board Characteristics and Firm Performance: Evidence from the Listed Non-
Banking Financial Institutions of Bangladesh. International Journal of Management, Accounting
and Economics, 8(1), 25 -41.
DOI: 10.5281/zenodo.4589504
URL: http://www.ijmae.com/article_127102.html

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