CG Seminar 1B

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Transcript of CG Seminar 1B

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WELCOME TOMGT 631

CORPORATE GOVERNANCE SEMINAR (1 Credit)

Session 1 By

Radhe S. Pradhan

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CG Seminar 1 (Part I) Radhe S. Pradhan & Som Nath Adhikari (2009),

“Corporate Governance and Firm Performance in Nepal”, Management Review, Vol. 1, No.1, pp. 22-26.

The study reveals the existence of the relationship between CG practices & firm performance in Nepalese enterprises.

Among others, the companies conducting AGM on time, financial statement submitted on time & ‘A’ Class auditor appointed in a firm, have higher rates of return & higher MPS.

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With the increase in % of institutional ownership, public capital & public director, rates of return & market price of share tends to increase.Similarly, with the increase in total assets, and rate of return, MPS tends to increase, confirming the size effect on CG.However increase in leverage of the firm tends to decrease in firm’s rates of return & MPS.

Questions

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Table 1 : Number of Enterprises Selected for the Study S.N. Sectors N n n/N (%) 1 Hotel 4 1 25 2 Manufacturing & processing co. 29 10 34.48 3 Trading companies 8 3 37.5 4 Others 4 0 00.00 Total 45 14 31.11

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Table 2 : Collection of data and number of observations used in the StudyS.N. Name of enterprises Years Observations Manufacturing & processing co. 1 The Juddha Match Factory (Biratnagar) Ltd.

(TJMF) 1997-2003 7

2 Bottlers Nepal (Balaju) Ltd. (BNB) 1997-2003 7 3 Nepal Lube Oil Ltd. (NLO) 1997-2003 7 4 Jyoti Spinning Mills Ltd. (JSM) 1997-2003 7 5 Nepal Lever Ltd. (NLL) 1997-2003 7 6 Bottlers Nepal (Terai) Ltd. (BNTL) 1997-2003 7 7 Arun Vanaspati Udhyog Ltd. (AVUL) 1997-2003 7 8 Sri Bhrikuti Pulp & Paper Ltd. (SBPP) 1997-2003 7 9 Fleur Himalayan Ltd. (FHL) 1997-2003 7 10 Sri Ram Sugar Mills Ltd. (SRSM) 1997-2003 7 Trading Companies 11 Bisal Bazaar Co. Ltd. (BBCL) 1997-2003 7 12 Salt Trading Corporation Ltd. (STCL) 1997-2003 7 13 Nepal Trading Ltd. (NTL 1997-2003 7 Hotels 14 Soaltee Hotel Ltd. (SHL) 1997-2003 7 Grand total 98

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Ln R = 0.2542 + 0.365Ln (IO) + 0.197 Ln (TA) - 0.2648 Ln (L) + 0.281 Ln (AGM) (2.13)* (2.32)* (2.55)** (2.14)* (2.17)* R2 = 0.16 F = 5.57 ………….. 1 Ln R = 0.2093 + 0.1728 Ln (PC) + 0.2594 Ln (TA) - 0.335 Ln (L) + 0.281 Ln (AGM) (1.71) (1.16) (3.0115)* (2.59)* (2.114)* R2 = 0.124 F = 4.39 ………….. 2 Ln R = 0.1720 + 0.3125Ln (IO) + 0.194 Ln (TA) - 0.3144 Ln (L) + 0.4022 Ln (FS) (1.23) (1.89) (2.47) (2.23) (1.72) R2 = 0.1446 F = 5.05 ………….. 3

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Ln R = 0.1139 + 0.1429 Ln (PC) + 0.2416 Ln (TA) - 0.3941 Ln (L) + 0.47 Ln (FS) (0.809) (0.93) (2.73)* (2.80)* (1.99)* R2 = 0.1196 F = 4.26 ………….. 4 Ln R = 0.0131 + 0.4912 Ln (IO) + 0.1252 Ln (TA) - 0.1109 Ln (L) + 0.4213 Ln (AU) (0.068) (2.95)* (1.38) (0.841) (1.89) R2 = 0.1503 F = 5.24 ………….. 5 Ln R = 0.0975 + 0.2236 Ln (PC) + 0.2456 Ln (TA) - 0.2343 Ln (L) + 0.223 Ln (AU) (0.48) (1.49) (2.55)** (1.77) (1.02) R2 = 0.0918 F = 3.42 ………….. 6

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Ln MPS = 0.4027 + 0.2126Ln (IO) + 0.7334 Ln (TA) - 0.3631 Ln (L) +0.6131Ln (AGM) (1.92) (0.76) (5.39)* (1.67) (2.10)* R2 = 0.46 F = 21.51 ………….. 7 Ln MPS= 0.4027 + 0.1515 Ln (PD) + 0.7659 Ln (TA) - 0.4059 Ln (L) +0.6257Ln (AGM) (1.82) (0.55) (5.45)* (1.84) (2.75)* R2 = 0.45 F = 21.37 ………….. 8 Ln MPS = 0.4355 + 0.3067Ln (PC) + 0.8188 Ln (TA) - 0.4486Ln (L) +0.5865Ln (AGM) (2.08) (1.20) (5.54)* (2.026)* (2.57)** R2 = 0.46 F = 21.92 ………….. 9

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Ln MPS= 0.2550 + 0.1173 Ln (IO) + 0.7308 Ln (TA) - 0.4393 Ln (L) +0.7793Ln (FS) (1.02) (0.40) (5.23)* (1.75) (1.87) R2 = 0.439 F = 19.82 ……….. 10 Ln MPS = 0.2556 + 0.1067Ln (PD) + 0.7503 Ln (TA) - 0.4746 Ln (L) +0.8113Ln (FS) (1.01) (0.378) (5.17)* (1.93) (2.024)* R2 = 0.439 F = 19.81 ……….. 11 Ln MPS= 0.3204 + 0.2877Ln (PC) + 0.8083 Ln (TA) - 0.5004 Ln (L) +0.7137Ln (FS) (1.307) (1.08) (5.24)* (2.04)* (1.74) R2 = 0.4457 F = 20.29 ……….. 12 Ln MPS= -0.0235 + 0.4184Ln (PC) + 0.7308 Ln (TA) - 0.1916 Ln (L) +0.7715Ln (AU) (0.45) (1.64) (4.45)* (0.85)* (2.07)** R2 = 0.4531 F = 20.88 ……….. 13

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CG Seminar 1 (Part 2) Shawgat S. Kutubi , “Board of Director’s Size,

Independence and Performance: An Analysis of Private Commercial Banks in Bangladesh.

World Journal of Social Sciences Vol. 1. No. 4. September 2011. Pp.159-178

This study examines the impact of board size and independent directors on the performance of local private commercial banks in Bangladesh.

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In Bangladesh, the listed companies’ board of directors to select an independent director in the board as at least one tenth (1/10), subject to a minimum of one person.

The study included 28 (out of 30) commercial banks operating in the private sector, which are listed in the two stock exchanges of the country.

In Bangladesh, under the Bank Companies Act 1991, Bangladesh Bank required the banking firm to appoint the depositor director from the depositors (Rule 2008).

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The model:Dependent variable = a + b1 BS + b2 IF + b3 Size +

b4 Leverage +b5 NPL Dependent variable: Performance measures

Return on Equity (ROE) Return on Asset (ROA) Tobin’s Q: Ratio of firm market to book

value measured by the book value of total assets minus the book value of common equity plus the market value of common equity divided by the book value of total assets. (>1 is good).

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Independent variables: Board Characteristics: Board Size ( BS) Ratio of Independent Directors( RID)Control Variables: ASSETS: The average total assets at the end of

each year. LEVERAGE: Ratio of total debt plus equity to

the total assets at the end of each year. NPL: Ratio of non-performing loan to total loans Table 3 descriptive statistics: Mean ROE is

0.1845, & Mean of ROA is 0.0149, Tobin’s Q mean is 1.1068.

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On average, the BS of the banking sector is 12.99 i.e. 13 (Min 6.4 & Max 17.6).

Average ratio of independent director’s is 0.0403 (min zero & max 0.1812).

A positive correlation exists between the ROE and ROA with board size (BS) but not statistically significant.

NPL is found negatively correlated with both ROA & ROE.

Size is positively related to bank performance.\ The study concludes that the inclusion of

independent directors does affect the bank performance in terms of ROE & ROA.

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Leverage is found to be positively related with bank performance.

The coefficient of NPL is negative and statistically significant. This implies that increase in NPL leads to decrease in ROE of banking firm.

Table 13: Multiple regression result shows that BS, RID, Assets, Lratio affect positively on ROA, but NPL has negative effect.

There is a positive relation between board size and bank performance in terms of Tobin’s Q, but no significant relation in terms of ROE and ROA.

Thanking you

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Hypothesis

H1: Bank board size is positively related to their performance in terms of ROE, ROA, and Tobin’s Q.

H2: The proportion of independent directors on the board is positively related with bank’s performance.

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Variables and Statistics

Dependent variable = α+β1 BS + β2 ID+ β3 Size + β4 leverage+ β5 NPL+ ε….

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Variables

ROE ROA Tobin’s Q

BS RID Assets LVR NPL

Mean 0.185 0.015 1.107 12.99 0.04 52317793690

0.103 0.039

Median

0.190 0.014 1.096 13.4 0.03 45952231624

0.093 0.037

Std. Dev.

0.069 0.007 0.056 2.69 0.04 31938253696

0.044 0.021

MIN 0.002 0.001 1.032 6.4 0 26877316778

0.058 0.006

MAX 0.326 0.041 1.267 17.6 0.18 194735498758

0.263 0.112

Table 3: Descriptive Statistics

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Table 4:Pearson Pair-Wise Correlation Matrix of the Variable

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Table 12: Anova.

kutubi

Model Sum of squares

df Mean Sum of Square

F Sig

1 Regression 0.011 5 0.002 0.4 0.844(a)

Residual 0.121 22 0.005

Total 0.132 27

a) Predictors: (constant), NPL, Assets , BS, ratio , RIDb) Dependent Variable : ROE

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CoefficientsModel Unstandardized

coefficientsStandarized coefficients

t Sig

Constant 0.132 0.815 0.424

BS 0.007 0.250 0.878 0.390

RID 0.487 0.096 0.337 0.740

Assets 0.000 0.047 0.229 0.821

Lratio 0.334 0.040 0.188 0.853

NPL 0.683 -0.202 -0.967 0.344

Std. Error

B Beta

0.107

0.007

0.164

0.000

0.063

-0.661

a) Dependent Variable: ROE

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Table 13: Anova.

kutubi

Model Sum of squares

df Mean Sum of Square

F Sig

1 Regression

0.000 5 0.000 0.539 0.745(a)

Residual

0.001 22 0.000

Total 0.001 27a) Predictors: (constant), NPL, Assets , BS, Lratio , RIDb) Dependent Variable : ROA

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Coefficients

Model Unstandardized coefficients

Standarized coefficients

t Sig

Constant 0.013 0.415 0.682

BS 0.001 0.330 1.173 0.253

RID 0.046 0.160 0.571 0.574

Assets 0.000 0.004 0.019 0.985

Lratio 0.032 0.031 0.146 0.885

NPL 0.065 -0.209 -1.018 0.320

Std. Error Beta

0.005

0.001

0.026

0.000

0.005

-0.066

a) Dependent Variable: ROA

Beta

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Table 14: Anova.

kutubi

Model Sum of squares

df Mean Sum of Square

F Sig

1 Regression

0.023 5 0.005 1.631 0.194(a)

Residual

0.062 22 0.003

Total 0.084 27a) Predictors: (constant), NPL, Assets , BS, Lratio , RIDb) Dependent Variable : Tobin’s Q

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Coefficients

Model Unstandardized coefficients

Standarized coefficients

t Sig

Constant 0.094 11.568 0.000

BS 0.005 -0.090 -0.352 0.728

RID 0.348 0.335 1.322 0.200

Assets 0.000 -0.126 -0.685 0.500

Lratio 0.238 0.008 0.043 0.966

NPL 0.488 0.339 1.823 0.082

Std. Error

Beta Beta

1.088

-0.002

0.46

0.0

0.010

0.890a) Dependent Variable: Tobins Q Thanking you