Corporate governance and financial institutions performance

Abstract

The primary aim of this thesis was to examine the relationship between board independence and financial institutions performance, while also examining the moderation effect on the institutional factors of shareholder and creditor rights on the association between board independence and performance. Using 2000 firm year observations across 25 different countries, a panel data regression was conducted to develop understanding of said relationship. The stated hypotheses were that board independence of financial institutions had a positive effect on performance, while both shareholder and creditor rights were expected to have a negative moderation effect on this association. However, the findings revealed mixed results regarding the impact of board independence on financial institutions' performance. Shareholder rights and their interaction with board independence were on the other hand found to significantly affect financial institutions' performance. Although the study could not provide sufficient evidence to either reject or accept the hypothesis that creditor rights have a negative moderation effect on the association between board independence and financial institutions' performance. Future research may benefit from more developed and sophisticated models to determine the causal effect of the relationship between board independence and financial institutions' performance, moderated by the institutional factors of shareholder and creditor rights.