Loan quality: does bank corporate governance matter?

ABSTRACT

The influence of corporate governance on quality of loan has rarely been explored in banking sector of Pakistan. This study, therefore, aims to investigate the effect of corporate governance on loan quality by employing relevant econometric specification such as panel fixed effect and 2SLS regression models, for the period 2005–2015. The findings reveal lower proportion of block holder, lower debt level, low frequency of board meetings and high percentage of affiliated audit committee play pivotal role in improving loan quality of the banks. Our study has practical and policy implications which might be useful whilst policy makers devise and implement Code of Corporate Governance with the aim to reduce nonperforming loans in the country’s banking sector.

KEYWORDS:

• Corporate governance
• nonperforming loans
• loan quality
• banks

JEL CLASSIFICATION:

• G18
• G21
• G34

Disclosure statement

No potential conflict of interest was reported by the authors.

Data availability statement

The data described in this article are openly available in the Open Science Framework at DOI:10.17605/OSF.IO/TPA6U.