Abstract:
The purpose of this research is to determine the effect of governance structure on the financial performance of the banking sector in Pakistan, considering the agency and stakeholder theories. In an era where domestic and global markets are competitive, the objective is to ascertain which characteristics of governance mechanisms significantly impact financial performance. Quantitative secondary data, spanning from 2013 to 2024, is sourced from the published annual reports of 18 commercial banks listed on the Pakistan Stock Exchange, using a purposive (nonprobability) sampling technique. Since governance structure and financial performance are not directly measured, proxy variables have been used to measure them and analyze their association in light of the existing literature. Consequently, board size, frequency of board meetings, and number of female members on the board have been chosen to measure governance structure, whereas return on assets (ROA) and return on equity (ROE) have been used to measure the financial performance of banks. Descriptive, correlation, and random effects linear regression analyses have been conducted using EViews 10. The results show that, on average, Pakistani banks consist of boards having 9 directors, with less than 1 female member per board. The boards meet approximately 7 times per year. The average ROA and ROE were found to be 1.10% and 17.27%, respectively. The correlational analysis revealed that board size and the number of female members on the board were weakly positively correlated with return on assets and return on equity. In contrast, the frequency of board meetings was weakly negatively associated with ROA and ROE. However, the random effects regression analysis showed small and insignificant links for all three independent variables under study with respect to ROA and ROE, except for the number of female members, which showed a small and significant result with respect to ROE only. Thus, the governance structure is not related to the financial performance of banks in Pakistan. The study can be further extended to include other aspects of governance structure and financial performance in the research model. It can also be conducted on other sectors and countries to increase generalizability, and the results can be used to introduce change to the governance structures at an organizational and regulatory level to improve financial performance.
