Transformations  in
Business & Economics

CORPORATE GOVERNANCE AND BANK PROFITABILITY. AN EMPIRICAL ASSESSMENT FOR EMERGING EUROPE
Bogdan Narcis Firtescu, Paula-Andreea Terinte, Angela Roman, Sorin Gabriel Anton

ABSTRACT. The aim of this paper is to evaluate the impact of corporate governance characteristics on bank profitability in Emerging Europe while controlling for bank - specific and macroeconomic level factors. We analyze the effects on banking profitability using panel data fixed effects (within) and System GMM models, based on hand-collected dataset regarding corporate governance variables and from Bankscope and World Bank databases for other independent variables. The sample contains data regarding 180 commercial banks over the period between 2003 and 2015. We found, using a bank sample from Central and Eastern Europe (CEE), that, when the corporate governance principles and practices are not respected, there is a negative influence on bank profitability. The results proved to be robust for different measures of profitability, control variables and methodologies. Our findings may be useful for banks and other financial institutions in improving their corporate governance framework and for supervisory authorities in strengthening the prudential policies.

KEYWORDS:  CEO duality, board management, corporate governance, bank profitability, Emerging Europe.

JEL classification:  G3, G21, G34.