Impact of Corporate Governance on Firm Efficiency: A Study of Thai Banking Companies
Article Sidebar
Main Article Content
Abstract
Corporate governance refers to the system by which organizations are directed and controlled. The need for and the relative importance of corporate governance arose in the 1980s due to poor corporate governance, which led to a loss in the value of firms, a downturn in economies, trust deficit in businesses, and corporate responsibility scandals. Good corporate governance will help in reassuring the stakeholders that an organization's Board of directors (BOD) and top management are acting as worthy agents of their principal (the shareholders). Firm efficiency is the effective utilization of a firm's resources to generate more revenues. The present paper addresses whether a positive relationship exists between corporate governance and firm efficiency in Thai Banking companies. It analyzes whether good corporate governance leads to better firm efficiency and helps users' decision-making. For this purpose, the corporate governance scores (CG scores) of eleven (11) Thai banking companies (Public Companies Limited) have been compared and evaluated with their firm efficiency for each of the five years from 2015 to 2019. Data Envelopment Analysis (DEA) has been performed on essential financial items to determine firm efficiency. These financial items relate to the ones used in DuPont analysis. They have been obtained from the banks' financial statements. The findings report the change in CG scores and DEA firm efficiency of Thai banking companies and the impact of corporate governance on the efficiency of these firms. There is a clear and positive relationship between corporate governance and firm efficiency for most Thai banking companies but not for all of them.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
References
Afsar, B., Badir, Y. F., Saeed, B. B., & Hafeez, S. (2017). Transformational and transactional leadership and employee's entrepreneurial behavior in knowledge-intensive industries. The International Journal of Human Resource Management, 28(2), 307-332.
Anadol, B., Joseph, P. C., Simak, P., & Yang, X. (2014). Valuing private companies: A DEA approach. International Journal of Business and Management, 9(12), 16.
Avkiran, N. K. (1999). The evidence on efficiency gains: The role of mergers and the benefits to the public. Journal of Banking & Finance, 23(7), 991–1013.
Claessens, S. & Yurtoglu, B. (2006). Corporate governance and development. The World Bank Research Observer, 21(1), 91-122.
Deng, H., Yeh, C. H., & Willis, R. J. (2000). Inter-company comparison using modified TOPSIS with objective weights. Computers & Operations Research, 27(10), 963-973.
Denis, D. K., & McConnell, J. J. (2003). International corporate governance. Journal of Financial and Quantitative Analysis, 38(1), 1-36.
Gumbau-Albert, M., & Maudos, J. (2002). The determinants of efficiency: the case of the Spanish industry. Applied Economics, 34(15), 1941-1948.
Ho, A. D., & Yu, C. C. (2015). Descriptive statistics for modern test score distributions: Skewness, kurtosis, discreteness, and ceiling effects. Educational and Psychological Measurement, 75(3), 365-388.
Hoontrakul, P., & Karnchanasai, C. C. (2010). The evolution of corporate governance in the banking industry of Thailand from the 1997 Asian crisis to the 2008 global credit crisis. SSRN Electronic Journal.
Hsu, W. Y., & Petchsakulwong, P. (2010). The impact of corporate governance on the efficiency performance of the Thai non-life insurance industry. The Geneva Papers on Risk and Insurance-Issues and Practice, 35(1), S28-S49.
Iftikhar, U., Asghar, M. J. E. K. A., Khan, H., & Mirza, H. H. (2019). The corporate governance and efficiency of commercial banks in Pakistan: application of the non-parametric approach. Argumenta Oeconomica, 2(43), 169–189.
Jo, H., & Harjoto, M. A. (2011). Corporate governance and firm value: The impact of corporate social responsibility. Journal of business ethics, 103(3), 351-383.
Koh, K. R., & Nawalkha, S. K. (2020). Firm efficiency and the investment anomalies. Managerial Finance, 46(12), 1589–1603.
Lall, A. (2015, October). Data streaming algorithms for the Kolmogorov-Smirnov test. In 2015 IEEE International Conference on Big Data (Big Data) (pp. 95-104). IEEE.
Limpaphayom, P. (2001). Corporate Governance and Finance in East Asia− A Study of Indonesia, Republic of Korea, Malaysia, the Philippines and Thailand, Vol. 2. Asian Development Bank.
Lin, C., Ma, Y., & Su, D. (2009). Corporate governance and firm efficiency: evidence from China's publicly listed firms. Managerial and Decision Economics, 30(3), 193-209.
Mekong Capital. (2003). Recommendations on Good Corporate Governance Practice in Vietnam. Mekong Capital. https://www.mekongcapital.com
Nanka-Bruce, D. (2011). Corporate governance mechanisms and firm efficiency. International Journal of Business and Management, 6(5), 28.
Nguyen, T. L. A., & Vo, X. V. (2020). Does corporate governance really matter for bank efficiency? Evidence from ASEAN countries. Eurasian Economic Review, 10(4), 681-706.
Ongore, V. O., & Owoko, P. (2011). Effects of selected corporate governance characteristics on firm performance: Empirical evidence from Kenya. International Journal of Economics and Financial Issues, 1(3), 99.
Pampurini, F., & Quaranta, A. G. (2018). Sustainability and efficiency of the European banking market after the global crisis: The impact of some strategic choices. Sustainability, 10(7), 2237.
Praptiningsih, M. (2009). Corporate governance and performance of banking firms: evidence from Indonesia, Thailand, Philippines, and Malaysia. Jurnal Manajemen dan Kewirausahaan, 11(1), 94-108.
Prommin, P., Jumreornvong, S., & Jiraporn, P. (2014). The effect of corporate governance on stock liquidity: The case of Thailand. International Review of Economics & Finance, 32, 132-142.
Rodríguez‐Pérez, G., Slof, J., Solà, M., Torrent, M., & Vilardell, I. (2011). Assessing the Impact of Fair‐Value Accounting on Financial Statement Analysis: A Data Envelopment Analysis Approach. Abacus, 47(1), 61-84.
Salim, R., Arjomandi, A., & Seufert, J. H. (2016). Does corporate governance affect Australian banks' performance?. Journal of International Financial Markets, Institutions and Money, 43, 113-125.
Sharma, K. (2018). Fair-Value Accounting and Financial Statement Analysis in Thai Insurance Companies. AJMI-ASEAN Journal of Management and Innovation, 5(2), 176-188.
Sherman, H. D., & Zhu, J. (2013). Analyzing performance in service organizations. MIT Sloan Management Review, 54 (4), 37.
Thai Institute of Directors. (2018). Corporate Governance Report of Thai Listed Companies 2018. Thai Institute of Directors Association. http://www.thai iod.com/imgUpload/ CGR%20Report%202018.pdf
Visbal-Cadavid, D., Martínez-Gómez, M., & Guijarro, F. (2017). Assessing the efficiency of public universities through DEA. A case study. Sustainability, 9(8), 1416.
Zhu, N. & Shah, W. U. H. (2019). A Cross-Country Comparison of Operational Efficiency between Chinese and Pakistani Commercial Banking Industries. International Journal of Operational Research, 8(1), 1–11.
Zhu, N., Shah, W. U. H., Kamal, M. A., & Yasmeen, R. (2021). Efficiency and productivity analysis of Pakistan's banking industry: A DEA approach. International Journal of Finance & Economics, 26(4), 6362-6374