Abstract:
Corporate governance provides the structure through which the objectives of the company
are set, and the means of achieving those objectives and monitoring performance are
determined. The purpose of this study was to investigate the relationship between corporate
governance mechanisms and financial performance of Ethiopian commercial banks. From
the total of 17 commercial banks which are operating in the country, eight commercial banks
have been selected for the study by way of a purposive sampling. The study use ROA as
dependent variable and Whereas, independent variables like (board size, board meeting
frequency, audit committee size, board experience in finance sector and liquidity ) and
control variable like bank size and leverage have been used . To achieve this objective
descriptive and explanatory type of research design with a mixed approach, more of
quantitative, was employed .Primary data was collected using structured questionnaires
completed by the CEOs as they were in a better position to comment on corporate
governance affairs. Secondary data was collected from the NBE. The finding revealed that,
board size and liquidity have negative and significant impact on the performance of
Ethiopian commercial banks. On the other hand, board meeting frequency, audit committee
size, board experience in finance sector and bank size had a positive and significant impact
on banks performance. Finally, it is recommended that, all commercial banks should have
reasonable small board size in order to increase profitability. The banks should have
optimum board member with experience in finance sector. The board of directors should
meet at least once monthly by having a good agenda to generate superior financial
performance. The bank governor(NBE) needs to revisit its policy or it should take some
corrective actions like paying at least equal interest with that of the deposit in order to
enhance the performance of the sector in general. In addition having adequate audit
committee in the board member advisable to assists the banks internal control systems. It is
advisable to increase the bank size and capability in order to have more market share which
helps in generating more profit.
