Effects of Corporate Governance on Financial Performance of Rural Banks

Registration ID: IJNRD_198305

Published ID: IJNRD2306276

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Christine A. Cayanan

Corporate Governance, Financial Performance

Corporate Governance is a relationship between the bank’s board, management, shareholders and other stakeholders. The main purpose of corporate governance is to enhance the net income of shareholders. The researcher aims to study the effect of Corporate Governance on the Financial Performance of the rural banks in Pampanga. It seeks to determine the impact of good corporate governance as an independent variable on financial performance as a dependent variable. Data for this study was gathered from two sources, Published Financial Statements of rural banks covering the year end report from 2016 to 2019 which were obtained on the BSP Data Center Data. On the other hand, the board characteristics is obtained from each rural bank who participated in the study. A quantitative approach of research has been followed to determine the impact of the qualifications of the Board of Directors in Pampanga and the implementation of good governance in their respective rural banks. A descriptive survey was employed because it provides an accurate portrayal or account of the characteristics of the Board of Directors. The statistical tool that was used in this study was linear regression. This statistical tool analyzed how Corporate Governance practices correlates to the financial performance of rural banks in Pampanga. The bank’s financial performance was measured by the Return on Asset (ROA) and Return on Equity (ROE), wherein: ROA= Annual Net Income/Total Assets; ROE= Annual Net Income/Shareholders’ Equity. Based on the foregoing findings of the study, it can be concluded that the rural banks in Pampanga were substantially backed-up by physical and financial assets to support their stable operations commensurate to their size. The directors in rural banks have attained appropriate educational qualifications to become members of the policy making body of the rural banks. They have also been knowledgeable in the practice of corporate good governance as reflected in their fairness to deal with the officers, staff and other stakeholders. The board of the rural banks in Pampanga are also well structured following the standards prescribed by SEC and BSP. However, not all parameters of the corporate good governance have been fully exercised by the board of the rural banks. There are still parameters that needs to be enhanced particularly in the aspects of effectiveness, independence and accountability. Both ROA and ROE are dependent on the level of practice of corporate good governance. It seems obvious that the better the management of the bank based on sound banking principles, the better it can generate income and attract investors. Further, economic shocks can be survived and can be mitigated if directors would adhere to sound banking principles and proper management practices.

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Christine A. Cayanan (June-2023). Effects of Corporate Governance on Financial Performance of Rural Banks. INTERNATIONAL JOURNAL OF NOVEL RESEARCH AND DEVELOPMENT, 8(6), c689-c694. https://ijnrd.org/papers/IJNRD2306276.pdf

Volume 8 Issue 6, June-2023

Pages : c689-c694

Paper Reg. ID: IJNRD_198305

Published Paper Id: IJNRD2306276

Research Area: Management

Author Type: Foreign Author

Country: Mexico, PAMPANGA, Philippines

Published Paper PDF: https://ijnrd.org/papers/IJNRD2306276.pdf

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