Board structure and bank performance: Evidence from Ethiopia

Figures & data

Table 1. List of commercial banks in Ethiopia along with their year of establishment and number of branches in 2018/19

Sr.No	Bank Name	Establishment	Branches	Ownership
1	Abay Bank	2010	162	Private
2	Addis International Bank*	2011	59	Private
3	Awash International Bank	1994	368	Private
4	Bank of Abyssinia	1996	284	Private
5	Berhan International Bank	2010	168	Private
6	Bunna International Bank	2009	176	Private
7	Commercial Bank of Ethiopia	1963	1482	Public
8	Cooperative Bank of Oromia	2005	332	Private
9	Dashen Bank	2003	381	Private
10	Debub Global Bank*	2012	43	Private
11	Enat Bank*	2012	40	Private
12	Lion International Bank	2006	210	Private
13	Nib International Bank	1999	228	Private
14	Oromia International Bank	2008	260	Private
15	United Bank	1998	233	Private
16	Wegagen Bank	1997	292	Private
17	Zemen Bank	2009	25	Private
	Total		4757

Source: National Bank of Ethiopia (2018/19)

Note: The banks with * are those that aren’t included in the study

Table 2. Variables and definition

Variables	Abbreviation	Definition
Panel A: Dependent variable
Tobin’s Q ratio	Q	The sum of the bank’s market value of equity added to the book value of debit divided by the book value of total assets. To be used as aregressant, Tobin’s Q ratio values are converted into logarithmic (natural) form.
Panel B: Board structure variables
Board Size	BSIZE	The number of directors on the board
Board Composition	BCOMP	The proportion of independent directors on the board
CEO Duality	DUAL	Dummy variable equal one if CEO is also the board’s chairperson or Zero otherwise
Female Directors	FDIRS	The proportion of females having sittings on the board of directors
Panel C: Other control variables
Capitalization	CAPRATIO	The percentage of bank’s total equity to its total assets
GDP Growth	GDPGROW	Measured by the year wise percentage growth rate of GDP computed at market prices
Leverage	LEV	The ratio of bank’s total liabilities to its total assets
Bank Size	LnTA	The natural logarithm of the bank’s total assets

Figure 1. Board structure and control variables.

Source: Developed based on literature

Table 3. Descriptive statistics

	Obs	Mean	Max	Min	Sd
Q	126	0.971	1.201	0.789	0.065
BCOMP	126	0.998	1.000	0.917	0.007
BSIZE	126	9.554	13.000	6.000	1.582
CAPRATIO	126	0.136	0.346	0.026	0.044
DUAL	126	0.158	1.000	0.000	0.366
FDIRS	126	0.144	0.300	0.000	0.096
GDPGROW	126	9.534	11.200	6.800	1.250
LEV	126	0.864	0.973	0.654	0.043
LnTA	126	9.451	13.810	6.125	1.413

This table describes the summary statistics of the sample variables. Abbreviation is as defined in Table 2.

Source: Own computation

Table 4. Unit root test

Variables	Levin, Lin & Chu t*	I’m, Pesaran and Shin W—test	ADF–Fisher Chi—square	PP–Fisher Chi–square
Panel A: Dependent variable (bank performance)
Q	0.000	0.107	0.075	0.000
Panel B: Independent variables (bank structure variables)
BCOMP	0.000	0.000	0.000	0.000
BSIZE	0.000	0.000	0.000	0.000
DUAL	0.000	0.000	0.000	0.000
FDIRS	0.000	0.000	0.000	0.000
Panel C: Independent variables (control variables)
CAPRATIO	0.000	0.000	0.000	0.000
GDPGROW	0.000	0.000	0.000	0.000
LEV	0.000	0.000	0.000	0.000
LnTA	0.000	0.000	0.000	0.000

Source: Own computation

Table 5. Correlation analysis

	Q	BCOMP	BSIZE	DUAL	FDIRES	CAPRATIO	GDPGROW	LEV	LnTA
Q	1.00
BCOMP	−0.148	1.00
BSIZE	−0.165	−0.139	1.00
DUAL	−0.120	−0.206	0.081	1.00
FDIRES	0.141	−0.003	0.126	0.096	1.00
CAPRATIO	0.215	0.067	0.071	−0.049	0.227	1.00
GDPGROW	0.172	−0.120	−0.161	0.014	−0.040	0.212	1.00
LEV	−0.095	0.051	−0.057	0.058	0.221	−0.382	−0.239	1.00
LnTA	0.204	0.037	0.002	0.082	0.264	−0.737	−0.379	0.480	1.00

Note: Bold text designates significance at 1% level or more. Abbreviation is as defined in Table 2.

Source: Own computation

Table 6. Model estimation results summary

Variables	Pooled		Fixed		Random
	Coeff.	Prob.	Coeff.	Prob.	Coeff.	Prob.
C	−0.160	0.835	0.225	0.727	0.102	0.870
Board structure variables
BCOMP	0.113	0.042	0.034	0.002	0.046	0.020
BSIZE	0.004	0.076	−0.001	0.038	0.002	0.011
DUAL	0.002	0.069	−0.001	0.034	0.001	0.057
FDIRS	−0.048	0.023	0.181	0.001	0.102	0.022
Control variables
CAPRATIO	1.892	0.000	1.512	0.001	1.667	0.000
GDPGROW	−0.003	0.036	0.003	0.003	0.001	0.061
LEV	0.958	0.214	0.463	0.300	0.622	0.146
LnTA	−0.008	0.109	−0.006	0.242	0.002	0.646
R-squared		0.578		0.791		0.507
Adjusted R-squared		0.548		0.748		0.473
F-statistic		19.549		18.269		14.693
Prob (F-statistic)		0.000		0.000		0.000
Hausman test	0.003

Abbreviation is as defined in Table 2.Source: Own computation

Table 7. Summary of GMM estimation results

Variables	Coeff.	Prob.
Lag Q	0.423	0.000
Board structure variables
BCOMP	0.329	0.007
BSIZE	−0.173	0.029
DUAL	−0.029	0.042
FDIRS	0.032	0.017
Control variables
CAPRATIO	0.962	0.010
GDPGROW	0.087	0.009
LEV	−0.005	0.018
LnTA	0.387	0.079
Number of Observations	126
AR(1) test stat	0.000
AR(2) test stat	0.260
F	16.874
Prob > F	0.000

Abbreviation is as defined in Table 2.

Source: Own computation

Table A1. Model estimation results summary (without control variables)

Variables	Pooled		Fixed		Random
	Coeff.	Prob.	Coeff.	Prob.	Coeff.	Prob.
C	−0.281	0.694	0.431	0.570	0.185	0.492
Board structure variables
BCOMP	0.151	0.038	0.064	0.008	0.102	0.016
BSIZE	0.016	0.068	−0.011	0.024	0.039	0.022
DUAL	0.009	0.059	−0.030	0.041	0.009	0.067
FDIRS	−0.148	0.033	0.280	0.000	0.118	0.013
R-squared		0.451		0.632		0.419
Adjusted R-squared		0.428		0.601		0.396
F-statistic		15.317		13.408		11.908
Prob (F-statistic)		0.000		0.000		0.000
Hausman test	0.002