Impact of Country Level Corporate Governance on Profitability of Banks in India

Abstract

In recent years, there has been an uptick in the level of concern over corporate governance. This is mostly attributable to the widespread collapse of major corporations in both the local and international arenas. Both proactive and reactive actions have been adopted by governments in reaction to the growing number of instances of financial crises to achieve stability in the sector. Nevertheless, the stability of banking operations continues to be questionable despite the interventionist responsibilities played by the government. The primary objective of this research is to investigate the effect that corporate governance at the national level has on the profitability of Indian banks using a representative sample of 33 financial institutions, including 21 private and 12 public banks. Descriptive statistics, correlation analysis, regression analysis of the two-way variable intercept random effect model, and robustness checks including robust regression are utilized in the study. The purpose of the study is to assess; via the use of empirical research methods, the impact that good corporate governance has on the profitability of the banking sector in India. Return on Equity (ROE), Return on Assets (ROA) and Net Interest Margin (NIM) were accepted as proxies for profitability in the banking industry. The empirical evidence presented in the paper demonstrates that good corporate governance has a considerable influence on the profit performance of the Indian banking sector. In the context of India's status as a developing economy, this study offers new research that establishes a relationship between country-level corporate governance and the profitability of banking institutions.