Corporate governance and procyclicality in a banking financial factors: Empirical study on

the banks of Bangladesh 2016-2017

Abstract
Findings & Analysis
Banking scenario in Bangladesh always had its ups & downs throughout the years. There
have always been many significant factors that plays important role upon the fluctuation of
banks assets. The study has been done on 15 registered banks in Bangladesh. The data
variables consist of;
Loan Capitalizatio Liquidit Asset Political Tenur Board Fraction
Growth n y s Dependence e Size female
AB Bank 0.04 0.7 0.062 10.28 0 1 12 0.083
Al arafa 0.232 0.188 0.123 26.88 0 1 20 0
Bank asia 0.199 -0.457 0.063 28.73 0 4 13 0.154
Jamuna 0.342 0.96 0.06 10.62 0 2 20 0.05
Bank
National 0.128 -1 0 8.44 0 2 14 0.142
Bank
Mercantile 0.195 1 0.07 12.14 0 2 11 0
Bank
Trust Bank 0.087 0.9637 0.012 9.41 0 1 12 0
UCB 0.1842 0.9151 0.0503 10.16 0 1 20 0.1
Uttara Bank 0.099 1 0.0552 23.4 0 3 16 0
Dutch 0.052 0.79 0.68 37.6 0 1 7 0
Bangla
Eastern 0.168 0.833 0.066 32.8 0 1 11 0.091
Bank
IFIC Bank 0.112 0.76 0.051 29.8 0 1 8 0
Brac Bank 0.178 0.522 0.0636 34.99 0 3 7 0.1428
City Bank 0.0605 0.189 0.0961 29.09 0 0 11 0.1818
Dhaka Bank -0.0754 -0.013 0.0734 29.55 0 1 17 0.0588
Table 1: Data set for the year 2016
Loan Capitalization Liquidity Assets Political Tenure Board Fraction
Growth Dependence Size female
AB Bank 0.072 0.12 0.056 10.05 0 2 12 0.083
Al arafa 0.103 0.019 0.1245 32.11 0 2 20 0
Bank asia 0.207 0.113 0.062 29.27 0 4 10 0.2
Jamuna 0.215 0.67 0.05 12.81 0 3 20 0.05
Bank
National 0.184 -1 0 8.69 0 3 14 0.142
Bank
Mercantile 0.323 1 0.07 14.8 0 3 11 0
Bank
Trust Bank 0.2964 0.9851 0.046 8.61 0 2 11 0
UCB 0.1668 0.94341 0.0202 10.16 0 1 20 0.05
Uttara Bank 0.2641 1 0.0154 23.89 0 4 15 0
Dutch 0.105 0.83 0.7 40.2 0 2 7 0
Bangla
Eastern 0.172 0.85 0.0625 36.2 0 2 11 0.091
Bank
IFIC Bank 0.307 0.78 0.066 31.9 0 1 8 0.125
Brac Bank 0.18 0.337 0.0631 33.85 0 4 8 0.125
City Bank 0.0543 0.033 0.0863 29.88 0 1 5 0
Dhaka Bank -0.1059 0.007 0.0513 31.95 0 2 17 0.0588
Table 2: Data set for the year 2017

Loan Growth Growth rate of loans and advances.

Capitalization Percentage of net income that has been added to
capital as retained earnings after all the
adjustments and appropriations.
Liquidity Percentage of liquid assets to total assets.
Assets Percentage of total assets to paid up capital.
Table 3: Explanation of financial factors

Political Dependence Political influence of the chairman.

Tenure Tenure of board chairman as per the year.
Board Size Size of the board of directors.
Female Fraction Percentage of female directors in the board.
Table 4: Explanation of governance factors
Here the values on table 1 and table 2 has been calculated and analyzed by the members from
the annual reports of the respective banks.

Loan Capitalizatio Liquidit Asset Political Tenur Board Fraction

Growth n y s Dependency e Size Female
Mean 0.133 0.49 0.102 23.62 0 1.6 13.27 0.07
Median 0.128 0.76 0.063 29.27 0 1 12 0.06
SD 0.098  0.599 0.163 11.42 0  1.06 4.5  0.07
Min -0.0754 -1 0 8.61 0 4 7 0
Max 0.342 1 0.68 40.2 0 15 20 0.18

Table 1.1: Descriptive statistics of the year 2016

Loan Capitalizatio Liquidit Asset Political Tenur Board Fraction
Growth n y s Dependency e Size Female
Mean 0.18 0.45 0.1 23.62 0 2.4 12.6 0.062
Median 0.182 0.67 0.062 29.27 0 2 11 0.05
SD  0.121 0.566 0.169 11.42 0 1.06 4.91  0.06
Min -0.1059 -1 0 8.61 0 1 5 0
Max 0.323 1 0.7 40.2 0 4 20 0.2

Table 2.1: Descriptive statistics of the year 2017

Loan Capitalization Liquidity Assets

Growth
Multiple R 0.504540642 0.721145976 0.488858 0.576087
 R Square 0.254561259 0.520051519 0.238982 0.331876
Adjusted R -0.04361424 0.328072126 -0.06543 0.064627
Square
Standard Error 0.10038555 0.491026279 0.167808 0.382953
Observations 15 15 15 15
Table 1.2: Regression Statistics for the year 2016

Loan Capitalization Liquidity Assets

Growth
Multiple R 0.343337304 0.636945059 0.490612 0.52509
R Square 0.117880504 0.405699009 0.2407 0.27572
Adjusted R -0.23496729 0.167978612 -0.06302 -0.01399
Square
Standard Error 0.125495288 0.516558758 0.174332 0.50389
Observations 15 15 15 15
Table 2.2: Regression Statistics for the year 2017
For the regression statistical analysis the financial factors (Table 3) have been considered as
the dependent variable and the governance factors (Table 4) has been considered as the
independent variable. As the data value stands there was seen no relationship or political
dependence of the chairman has been observed. Thus, a dummy variable (0) has been input to
interpret the scenario. As per table 1.2 and 2.2 the multiple R analysis suggests that the
independent variables had significant relationship with capitalization, and rather moderate
relationship with the other financial factors. The data set that has been considered for the
analysis moderately fits with the dependent variables. There has been significant standard
error in the analyzed observations which can be from both human error and also from
different factors that has been kept unchecked in the reports of the observations.
  Coefficients Standard t Stat P-value Lower 95% Upper 95%
Error
Intercept -0.01496858 0.096816482 -0.15460784 0.88020641 -0.230689152 0.20075197
4 8
Political 0 0 65535 #NUM! 0 0
Dependence
Tenure 0.03610980 0.025745162 1.40258614 #NUM! -0.02125398 0.09347360
8 5 4
Board Size 0.00701742 0.005986467 1.17221412 0.26828016 -0.00632125 0.02035610
1 6 2 1
Fraction female -0.03714711 0.41185718 -0.09019415 0.92991391 -0.95482209 0.88052787
4 4
Table 1.3: Regression Stat of loan growth for the year 2016

  Coefficients Standard t Stat P-value Lower 95% Upper 95%

Error
Intercept 1.17347000 0.473568525 2.47793073 0.03265834 0.11829357 2.22864643
4 8 7 5 4
Political 0 0 65535 #NUM! 0 0
Dependence
 Tenure -0.07499557 0.125929989 -0.59553388 #NUM! -0.35558507 0.20559392
6
Board Size -0.01647023 0.029282229 -0.56246533 0.58618593 -0.08171511 0.04877463
7 3
Fraction female -5.15624752 2.014559851 -2.55949086 0.02839795 -9.6449666 -0.66752845
9
Table 1.4: Regression stat on capitalization for the year 2016
  Coefficients Standard Error t Stat P-value Lower Upper
95% 95%
Intercept 0.363305327 0.161841752 2.244818303 0.048605237 0.002699 0.723911
Political Dependence 0 0 65535 #NUM! 0 0
Tenure -0.02247241 0.043036496 -0.52217106 #NUM! -0.11836 0.073419
Board Size -0.01345793 0.010007184 -1.34482753 0.208387192 -0.03576 0.008839
Fraction female -0.70411869 0.688474589 -1.02272284 0.33054294 -2.23814 0.829898
Table 1.5: Regression stat on liquidity for the year 2016
  Coefficients Standard t Stat P-value Lower 95% Upper 95%
Error
Intercept 36.0611702 10.01380114 3.60114703 0.00483868 13.74903088 58.3733096
5 2 4 2
Political 0 0 65535 #NUM! 0 0
Dependence
Tenure 0.22666868 2.662841389 0.08512286 #NUM! -5.70651674 6.15984903
2 3 7
Board Size -1.09269635 0.619184766 -1.76473358 0.10807148 -2.47232578 0.28693349
6 8
Fraction female 4.96205773 42.59869621 0.11648379 0.90957525 -89.9537523 99.8778678
9 4 9
Table 1.6: Regression stat of assets for the year 2016
  Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
Intercept 0.142130986 0.119970471 1.184716413 0.263521696 -0.125179881 0.409441853
Political Dependence 0 0 65535 #NUM! 0 0
Tenure 0.033292015 0.033568423 0.991765818 #NUM! -0.041503093 0.108087122
Board Size -0.00363566 0.006934531 -0.52427711 0.611508572 -0.019086714 0.011815482
Fraction female -0.10774858 0.556483115 -0.19362473 0.850346569 -1.347670232 1.132173066
Table 2.3: Regression Stat of loan growth for the year 2017
  Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
Intercept 0.813303954 0.493817724 1.646971976 0.130584546 -0.28699504 1.913598411
Political Dependence 0 0 65535 #NUM! 0 0
Tenure 0.025867169 0.13817302 0.187208538 #NUM! -0.28201506 0.333735844
Board Size -0.01382466 0.028543644 -0.48355654 0.639114042 -0.07741669 0.049796737
Fraction female -4.14641475 2.290573869 -1.81026399 0.1003685 -9.25012806 0.957305157
Table 2.4: Regression stat on capitalization for the year 2017
  Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
Intercept 0.333346433 0.166656855 2.000196348 0.073364027 -0.037988181 0.704681046
Political Dependence 0 0 65535 #NUM! 0 0
Tenure -0.00353151 0.04663154 -0.07573227 #NUM! -0.107433059 0.100370034
Board Size -0.01348568 0.009633097 -1.39993167 0.191785235 -0.034949554 0.0079782
 Fraction female -0.92016558 0.773037941 -1.19032395 0.261409392 -2.642601419 0.802270322
Table 2.5: Regression stat on liquidity for the year 2017
  Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
Intercept 35.51865748 10.99744172 3.22972 0.009025233 11.01483031 60.02248465
Political Dependence 0 0 65535 #NUM! 0 0
Tenure -0.07796056 3.077147019 -0.02533538 #NUM! -6.934271386 6.778350267
Board Size -0.93045666 0.63567395 -1.46373254 0.173979832 -2.34682647 0.485913179
Fraction female 0.273598603 51.01164131 0.005363454 0.995826092 -113.3874213 113.9346185
Table 2.6: Regression stat of assets for the year 2017
The analysis suggests that there was a major study limitation since the variables do not
completely interpret the dependents and there are other major factors which plays in terms of
determining the relationship. In completion of the study the team recognized there to be a
significant non-disclosure issue regarding the annual reports where many relevant
information are not to be found. There is an inconsistency present regarding the valuation
methods among the observations. The data set itself isn’t sufficient enough to reflect the
relationship of the variables. But the analysis also suggests that changes in the independent
variables will also bring in significant changes in terms of the financial factors.
Conclusion
The paper was conceptualized from the paper “Corporate governance and procyclicality in a
banking crisis: Empirical evidence and implications” which was provided by the respected
faculty. In the formation of this paper a major factor that was missing from the parent paper
was the bailout of banks. Bangladesh has not seen many bailout scenarios and the
observations taken for the study did not consist of such scenario, which was a major gap for
the formulation. Despite the team has worked to bring out the relationship that was shown in
the prime study. The existence of the errors are due to the lack of human experience
regarding such works but the study has given a realistic view of how such factors play major
role regarding the observations.