Corporate governance and financial performance: Evidence from commercial banks in Tanzania

Figures & data

Figure 1. Trend of selected financial performance indicators.

Source: Researcher’s compilation from BOT 2003–2019 Annual Reports, 2020.

Figure 2. Rates of non-performing loans and values of loan portfolio.

Source: Researcher’s compilation from BOT 2004–2019 Annual Reports, 2020.

Figure 3. Resource-based view theory: Corporate governance through board demography.

Source: Author as adopted from Madhani (2017).

Table 1. Variables operationalisation

Dependent variable: Financial performance
CA: Measured by Equity Capital to total Assets Lotto and Kakozi (2016)
EA: Measured by Net income to total assets Lotto and Kakozi (2016)
EE: Measured by Net income to total equity Kapaya and Raphael (2016)
AQ: Measured by Non-performing Loans to Gross Loans Ally (2014)
Lq: Measured by Liquidity Assets to Short- term obligations Kabir and Dey (2012)
Independent variable: Corporate governance
BGD: Measured by % of women directors on the board Mori and Towo (2017)
BAG: Measured by; a dummy variable assigned to 1 if members are being offered served with terms of reference for behavioural expectations of directorship and 0 if otherwise (BAGi) the proportion of members the board who are senior leaders and non-senior leaders (BAGii) (this group tends to influence the decision-making process) Dummy variable; 1 if there is existence and execution of the annual board’s training budget on soft skills and 0 if otherwise (BAGiii) Brown and Brown (2011), Yılmaz (2010).
BC: Measured by a dummy variable assigned to 1 if the board formally evaluates its activities, the CEO’s performance and individual directors’ performance and 0 if otherwise Brown and Brown (2011), Yılmaz (2010).
BMO: Measured by a dummy variable assigned to 1 if a chairperson of a board who serves on more than two boards; 0 if otherwise Brown and Brown (2011), Yılmaz (2010).
ECOM: A dummy variable allocated to 1 for each existing important committee and 0 if otherwise. (Risk, Audit and Remuneration Committees) Chou and Buchdadi (2017) Alqatamin (2018).
BA: Measured by the number of board meetings held annually Balagobei (2019)
DS: Measured by % of shares held by directors to the total shares of the bank Sobhy et al. (2017)
BS: Measured by the Number of people sitting on board Mori and Towo (2017)
Control variables
SB; Measured by the log of total assets Matanda (2016)
AB; Measured by the number of years since the bank started Mori and Towo (2017)
OB: A binary variable measured by 1 if the bank is locally owned and 0 if it is foreign-owned Mori and Towo (2017)

Table 2. Variables’ descriptive statistics results

Variable	Obs.	Mean	Std. dev.	Min	Max
Capital Adequacy	255	.13	.14	−1.8	.84
Earning Ability	255	.03	.02	−.53	.25
Efficiency use of Equity	255	.17	.21	−.29	2.3
Asset Quality	254	.13	.19	0	.99
Liquidity	255	1.11	.42	.01	2.0
Board Gender Diversity (%)	255	20.3	16.7	0	71.4
Behavioural Aspect of Governance-i	255	.57	.5	0	1
Behavioural Aspect of Governance-ii (%)	255	23.0	21.4	0	66.7
Behavioural Aspect of Governance-iii	255	.54	.5	0	1
Board Control	255	.60	.49	0	1
Board Members Over-Boarding	255	.57	.49	0	1
Board’s important Committees’ Existence	255	.87	.34	0	1
Board Activities	255	4.9	1.7	2	11
Board Size	255	7.6	1.7	4	15
Directors’ shareholding (%)	255	5.6	14.8	0	60
Size of the bank	255	11.5	.61	9.4	12.8
Age of the bank	255	13.7	6.15	1	31
Ownership of the bank (%)	255	.27	.44	0	1

Source: Author’s compilation.

Table 3. Variables’ correlation

Variables	CA	EA	EE	AQ	Lq	BA	BGD	BAGi	BAGii	BAGiii	BC	BMO	BS	DS	ECOM	SB	AB	OB
CA	1.00
EA	0.16	1.00
	0.01
EE	0.04	0.20	1.00
	0.54	0.00
AQ	−0.03	−0.09	0.00	1.00
	0.63	0.14	0.96
Lq	−0.01	0.31	−0.16	−0.21	1.00
	0.91	0.00	0.01	0.00
BA	0.06	0.00	−0.06	−0.08	0.13	1.00
	0.39	0.98	0.33	0.19	0.03
BGD	0.00	0.13	−0.12	−0.25	0.04	0.11	1.00
	0.94	0.05	0.06	0.00	0.54	0.09
BAGi	0.00	0.10	−0.12	−0.21	0.08	0.17	0.42	1.00
	0.97	0.10	0.06	0.00	0.22	0.01	0.00
BAGii	−0.10	−0.13	0.07	0.10	−0.26	−0.17	−0.27	−0.24	1.00
	0.12	0.04	0.25	0.11	0.00	0.01	0.00	0.00
BAGiii	0.06	0.27	−0.08	−0.28	0.29	0.16	0.31	0.45	−0.53	1.00
	0.31	0.00	0.18	0.00	0.00	0.01	0.00	0.00	0.00
BC	−0.01	0.20	−0.17	−0.25	0.17	0.20	0.30	0.58	−0.31	0.49	1.00
	0.94	0.00	0.01	0.00	0.01	0.00	0.00	0.00	0.00	0.00
BMO	−0.08	−0.35	−0.03	0.23	−0.50	−0.04	−0.14	−0.28	0.59	−0.56	−0.34	1.00
	0.20	0.00	0.65	0.00	0.00	0.58	0.03	0.00	0.00	0.00	0.00
BS	0.00	−0.04	−0.12	−0.13	0.07	0.58	0.10	0.22	−0.01	0.17	0.22	−0.06	1.00
	0.98	0.49	0.06	0.04	0.27	0.00	0.10	0.00	0.85	0.01	0.00	0.33
DS	0.06	−0.01	0.00	−0.03	−0.06	−0.20	−0.24	−0.22	0.40	−0.30	−0.08	0.21	−0.13	1.00
	0.38	0.83	1.00	0.60	0.35	0.00	0.00	0.00	0.00	0.00	0.19	0.00	−0.04
ECOM	0.20	0.09	−0.26	0.07	0.09	0.15	0.12	0.40	−0.36	0.24	0.48	−0.22	0.00	−0.14	1.00
	0.00	0.14	0.00	0.30	0.16	0.02	0.07	0.00	0.00	0.00	0.00	0.00	0.97	0.03
SB	0.12	0.12	−0.15	−0.30	0.40	0.27	0.10	0.32	−0.27	0.49	0.45	−0.34	0.18	0.10	0.47	1.00
	0.06	0.06	0.02	0.00	0.00	0.00	0.12	0.00	0.00	0.00	0.00	0.00	0.01	0.11	0.00
AB	0.27	−0.14	−0.19	−0.27	−0.04	0.13	0.28	0.30	−0.14	0.30	0.11	0.04	0.01	0.06	0.32	0.51	1.00
	0.00	0.03	0.00	0.00	0.53	0.04	0.00	0.00	0.02	0.00	0.10	0.54	0.86	0.32	0.00	0.00
OB	−0.11	−0.13	0.20	−0.13	−0.07	0.35	−0.19	−0.20	0.48	−0.25	−0.07	0.25	0.37	0.39	−0.34	0.04	−0.16	1.00
	0.08	0.04	0.00	0.04	0.26	0.00	0.00	0.00	0.00	0.00	0.24	0.00	0.00	0.00	0.00	0.49	0.01

Source: Author’s compilation.

Table 4. Data diagnostic test results

Variable/test	Shapiro–Wilk test (Prob>z) (normality)	Mean VIF (multicollinearity)	Breusch-Pagan test (Prob>z) (heteroscedasticity)	Durbin Watson’s test (Prob>z) (independency)	Im-Pesaran-Shin (Prob≤z) (unit root)
CA and CG	0.74	3.52	0.38	1.22	0.0017
EE and CG	0.68	2.29	0.30	1.10	0.0002
EA and CG	0.72	3.61	0.40	1.35	0.0000
Lq and GC	0.68	2.59	0.77	1.10	0.0000
AQ and GC	0.57	2.82	0.94	1.04	0.0810

Source: Author’s compilation.

Figure 4. Scatter plots for study variables.

Source: Author’s compilation.

Table 5. Model fitness test results

	Chow test	Hausman test	Breusch & Lagrange multiplier test
CA and CG	0.846	0.0002	1.00
EE and CG	0.000	0.01	1.00
EA and CG	0.734	.262	1.00
Lq and CG	0.991	0.183	1.00
AQ and CG	0.227	0.000	1.00
	Common effect p >0.05 Fixed effect p<0.05	Fixed effect p<0.05 Random p >0.05	Common effect p >0.05

Source: Author’s compilation.

Table 6. Regression results for model one to five

Variables	Model 1: CA		Model 2: EE		Model 3: EA		Model 4: AQ		Model 5: Lq
	Coefficients	P-Value	Coefficients	P-Value	Coefficients	P-Value	Coefficients	P-Value	Coefficients	P-Value
Constant	1.80	0.37	0.32	0.99	0.06	0.99	0.33	0.64	−2.02	0.59
BA2	0.02	0.87	0.61	0.18	0.71***	0.00	−0.03	0.49	0.04**	0.05
BGD2	0.01	0.79	0.00	0.99	−0.09	0.19	−0.03***	0.01	−0.06	0.41
BAGi	−0.01*	0.05	1.31***	0.00	0.00	0.67	0.11**	0.02	−0.11	0.14
BAGii2	0.06**	0.03	−0.59*	0.07	−0.07	0.18	−0.01	0.29	−0.1	0.15
BAGiii	0.01	0.83	0.28	0.29	0.55***	0.00	0.01	0.84	−0.01	0.86
BC	−0.01	0.92	−0.78**	0.02	0.03	0.74	−0.05	0.30	0.03	0.66
BMO	0.15*	0.07	−0.30	0.32	−0.03	0.84	−0.11***	0.00	0.01	0.89
BS2	−0.03	0.83	−1.74**	0.01	−1.30***	0.00	0.23***	0.00	0.16	0.32
DS2	−0.03**	0.03	0.19**	0.02	0.05**	0.05	0.02***	0.00	−0.04**	0.04
ECOM	−0.08	0.47	−1.5***	0.00	−0.32	0.13	0.03	0.67	0.10	0.23
SB2	−1.86**	0.05	0.75	0.93	−0.27	0.90	−0.33	0.27	1.59	0.35
AB2	0.215*	0.08	0.44	0.56	−0.39**	0.05	0.09**	0.03	−0.26*	0.06
OB	0.17**	0.03		0.18	−0.39*	0.06	0.07**	0.01
R^2	6.046		0.471		0.5383		0.4462		0.274
Adj.R^2	0.2404		0.3421		0.4642		0.3502		0.152
F-Value	6.046		5.867		11.873		13.999		1.259
Observation	255		255		255		254		255

Notes: Panel data (Fixed and Common effect estimates).

Source: Author’s compilation.

Table 7. Board gender diversity hypothesis results

Hypotheses	Decision
H1a: Board gender diversity positively affects capital adequacy of commercial banks	Rejected
H1b: Board gender diversity positively affects efficiency use of equity of commercial banks	Rejected
H1c: Board gender diversity positively affects earning ability of commercial banks	Rejected
H1d: Board gender diversity positively affects asset quality of commercial banks	Supported
H1e: Board gender diversity positively affects liquidity of commercial banks	Rejected

Source: Author’s compilation.

Table 8. Behavioural aspects of governance hypothesis results

Hypothesis	Decision
H2a: Behavioural aspects of governance positively affect capital adequacy of commercial banks	Supported
H2b: Behavioural aspects of governance positively affect efficiency use of equity of commercial banks	Supported
H2c: Behavioural aspects of governance positively affect earning ability of commercial banks	Supported
H2d: Behavioural aspects of governance positively affect asset quality of commercial banks	Supported
H2e: Behavioural aspects of governance positively affect liquidity of commercial banks	Rejected

Source: Author’s compilation.

Table 9. Board control hypothesis results

Sub-hypothesis	Decision
H8a: Board control positively affects capital adequacy of commercial banks.	Rejected
H8b: Board control positively affects the efficient use of equity of commercial banks.	Rejected
H8c: Board control positively affects earning ability of commercial banks.	Supported
H8d: Board control positively affects asset quality of commercial banks.	Rejected
H8e: Board control positively affects liquidity of commercial banks.	Supported

Source: Author’s compilation.

Table 10. Board members over-boarding hypothesis results

Sub-hypothesis	Decision
H3a: Board members’ over-boarding positively affects capital adequacy of commercial banks	Rejected
H3b: Board members’ over-boarding positively affects efficiency use of equity of commercial banks	Rejected
H3c: Board members’ over-boarding positively affects earning ability of commercial banks	Rejected
H3d: Board members’ over-boarding positively affects asset quality of commercial banks	Supported
H3e: Board members’ over-boarding positively affects liquidity of commercial banks	Rejected

Source: Author’s compilation.

Table 11. Existence of important committees hypothesis results

Sub-hypothesis	Decision
H4a: Existence of important committees (Risk Committee, Audit Committee and Remuneration Committee) positively affects capital adequacy of commercial banks.	Rejected
H4b: Existence of important committees (Risk Committee, Audit Committee and Remuneration Committee) positively affects efficiency use of equity of commercial banks.	Supported
H4c: Existence of important committees (Risk Committee, Audit Committee and Remuneration Committee) positively affects earning ability of commercial banks	Rejected
H4d: Existence of important committees (Risk Committee, Audit Committee and Remuneration Committee) positively affects asset quality of commercial banks	Rejected
H4e: Existence of important committees (Risk Committee, Audit Committee and Remuneration Committee) positively affects the liquidity of commercial banks.	Supported

Source: Author’s compilation.

Table 12. Board size hypothesis results

Sub-hypothesis	Decision
H7a: Board size positively affects capital adequacy of commercial banks.	Rejected
H7b: Board size positively affects efficiency use of equity of commercial banks.	Supported
H7c: Board size positively affects earning ability of commercial banks.	Supported
H7d: Board size positively affects asset quality of commercial banks.	Supported
H7e: Board size positively affects liquidity of commercial banks	Rejected

Source: Author’s compilation.

Table 13. Board members’ ownership hypothesis results

Sub-hypothesis	Decision
H5a: Board Members’ Ownership positively affects capital adequacy of commercial banks.	Rejected
H5b: Board Members’ Ownership positively affects efficiency use of equity of commercial banks.	Supported
H5c: Board Members’ Ownership positively affects earning ability of commercial banks.	Supported
H5d: Board Members’ Ownership positively affects asset quality of commercial banks.	Supported
H5e: Board Members’ Ownership positively affects liquidity of commercial banks.	Supported

Source: Author’s compilation.

Table 14. Board activities hypothesis results

Sub-hypothesis	Decision
H6a: Board activities positively affects capital adequacy of commercial banks.	Rejected
H6b: Board activities positively affects efficiency use of equity of commercial banks.	Rejected
H6c: Board activities positively affects earning ability of commercial banks.	Supported
H6d: Board activities positively affects asset quality of commercial banks.	Rejected
H6e: Board activities positively affects liquidity of commercial banks.	Supported

Source: Author’s compilation.

Table 15. Robustness of empirical study findings

	(1)		(2)		(3)		(4)		(5)
	CA		EA		EE		AQ		Lq
Variables	MLRA	Robustness	MLRA	Robustness	MLRA	Robustness	MLRA	Robustness	MLRA	Robustness
L.CA		0.101
		(0.07)
L.EA				0.52***
				(0.14)
L.EE						−0.30*
						(0.17)
L.AQ1								−0.29***
								(0.07)
L.Lq										0.20*
										(0.12)
BA2	0.02	−0.02	0.71***	−0.012	0.614	0.24***	−0.03	0.05*	−0.04	0.16**
	(0.11)	(0.013)	(0.22)	(0.01)	(0.45)	(0.09)	(0.05)	(0.03)	(0.09)	(0.87)
BGD2	0.008	−0.01**	−0.09	−0.00*	0.00	−0.10***	−.0.03***	−0.003	−0.06	0.11***
	(0.03)	(0.00)	(0.07)	(0.00)	(0.35)	(0.03)	(0.01)	(0.00)	(0.77)	(0.03)
BAGi	−0.00*	0.01	0.003	0.05***	1.31***	0.22***	0.11**	0.06***	−0.112	−0.22***
	(0.003)	(0.02)	(0.01)	(0.02)	(0.34)	(0.05)	(0.04)	(0.02)	(0.08)	(0.07)
BAGii2	0.06**	−0.08***	−0.07	−0.04***	−0.59*	−0.09**	−0.01	0.02	−0.1	0.22***
	(0.06)	(0.03)	(0.05)	(0.01)	(0.32)	(0.05)	(0.01)	(0.02)	(0.07)	(0.06)
BAGiii	0.01	0.04**	0.55***	0.00	0.284	−0.14***	0.01	0.03**	−0.01	−0.06
	(0.06)	(0.02)	(0.13)	(0.01)	(0.27)	(0.04)	(0.02)	(0.01)	(0.06)	(0.07)
BC	−0.01	0.032**	0.05	0.00	−0.78**	0.01	−0.048	0.04**	0.03	−0.23***
	(0.07)	(0.02)	(0.14)	(0.01)	(0.32)	(0.04)	(0.05)	(0.02)	(0.07)	(0.06)
BMO	0.15*	−0.07***	−0.03	−0.06***	−0.23	−0.07	−0.11***	−0.07***	0.01	−0.21***
	(0.08)	(0.02)	(0.14)	(0.02)	(0.29)	(0.06)	(0.04)	(0.02)	(0.07)	(0.07)
BS2	−0.03	0.13**	−1.30***	0.05***	−1.75**	−0.27***	0.23***	0.02	0.16	−0.34**
	(0.15)	(0.05)	(0.28)	(0.02)	(0.69)	(0.08)	(0.06)	(0.02)	(0.15)	(0.16)
DS2	−0.03**	0.01**	0.05**	0.02***	−0.19**	0.10***	0.02***	0.00	−0.04**	−0.11***
	(0.01)	(0.00)	(0.03)	(0.00)	(0.08)	(0.03)	(0.01)	(0.00)	(0.02)	(0.02)
ECOM	−0.79	−0.19***	−0.32	−0.06*	−1.50***	0.40***	0.03	−0.17***	0.102	−0.05
	(0.11)	(0.07)	(0.21)	(0.04)	(0.37)	(0.14)	(0.06)	(0.03)	(0.08)	(0.25)
SB2	−0.34**	−1.15***	2.15*	0.23	−0.08	−1.52***	−0.33	−0.07	3.87***	5.04***
	(0.17)	(0.19)	(1.27)	(0.17)	(0.40)	(0.50)	(0.30)	(0.18)	(0.82)	(1.35)
AB2	0.08***	0.15***	−0.17*	0.01	−0.05	0.17***	0.09**	0.08***	−0.01**	−0.40***
	(0.01)	(0.02)	(0.09)	(0.01)	(0.03)	(0.06)	(0.04)	(0.02)	(0.07)	(0.11)
OB	0.02	−0.01		−0.07*	0.71**	0.23**		−0.04		0.24
	(0.02)	(0.03)		(0.04)	(0.33)	(0.12)		(0.04)		(0.19)
Constant	1.80	2.48***	−4.93	−0.57	0.32	4.04**	0.33	−0.76	−8.15	−14.1***
		(0.47)	2.91	(0.39)	(18.40)	(1.70)	(0.69)	(0.49)	(1.85)	(3.01)
AR(1) AR(2)		0.020 0.279		0.025 0.198		0.192 0.181		0.032 0.815		0.045 0.607
Sargan test Hansen test		0.015 0.877		0.022 0.296		0.00 0.737		0.008 0.425		0.003 0.164
Observations		42		42		42		42		42
Number of id		8		8		8		8		8
Prob > chi2 =0.000

Standard errors in parentheses; *** p<0.01, ** p<0.05, * p<0.1.

Source: Research Data, 2022.

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