CORPORATE GOVERNANCE AND FINANCIAL

PERFORMANCE IN UNITED STATES BANKS

by

Melonie T. Williams

MARC MUCHNICK, PhD, Faculty Mentor and Chair

JELENA VUCETIC, PhD, Committee Member

DAWN VALENTINE, PhD, Committee Member

Jennifer A. Straub, PhD, Interim Dean

School of Business, Technology, and Health Care Administration

A Dissertation Presented in Partial Fulfillment

Of the Requirements for the Degree

Doctor of Philosophy

Capella University

May 2022
© Melonie T. Williams, 2022
 Abstract

The purpose of this quantitative non-experimental research study using a causal-comparative

design was to examine the statistical relationships, if any, between the components of corporate

governance and financial performance of publicly held companies in the U.S. banking industry.

The population consisted of 310 publicly traded listed U.S. banks on the NYSE and NASDAQ,

and the convenience sample of the top 51 banks was chosen by market capitalization. The

research questions and hypotheses focused on the extent to which the dependent variable

(financial performance), proxied by the return on assets (ROA) and the return on equity (ROE),

could be predicted by four independent variables, specifically the number of non-executive

members, size of the board, tenure of the CEO, and CEO duality. The generalized linear mixed

model (GLMM), an advanced type of multiple regression, was used to analyze the relationship

between the repeated measures of the dependent and independent variables that were collected

every year for 10 years between 2007 and 2016. The results were inconclusive. The vast majority

(98% or more) of the variance in financial performance within the U.S. banking industry was not

explained by the variance in the size of the board, number of non-executive members, tenure of

the CEO, or the CEO duality. The only statistically significant predictor was the tenure of the

CEO tenure for both ROA and ROE. These findings were not consistent with previous research

in the literature regarding the prediction of corporate financial performance. The inconclusive

results are an indication that future research is necessary to examine relationship between

corporate governance and financial performance in U.S. banks.

 Dedication

This research study is dedicated to my children (Meshayla, Milen, Dillon, and D.

Thomas) and my parents (Tommy and Belinda Graham). This journey has been extremely

difficult, with many challenges, and I could not have crossed the finish line without all of you.

Meshayla: thank you for encouraging me and giving me the strength to continue. Milen: thank

you for holding down the house to allow me to complete this journey. Dillon: thank you for

keeping me on track. D. Thomas: thank you for always motivating me to keep going (“If you

have time to watch TV, you have time for PhD”). Tommy and Belinda: thank you for believing

in me. I will always be grateful and blessed for the best parents anyone can hope for.

iii
 Acknowledgments

I would like to thank my doctoral mentor and committee chair, Dr. Marc Muchnick, for

his support and commitment in guiding me through to the finish line of this journey. I would

also like to thank Jelena Vucetic and Dr. Dawn Valentine for their expertise and willingness to

serve as part of my dissertation committee.

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 Table of Contents

Acknowledgments.................................................................................................. iv

List of Tables ........................................................................................................ vii

List of Figures ...................................................................................................... viii

CHAPTER 1. INTRODUCTION ........................................................................................1

Background of the Problem .....................................................................................2

Statement of the Problem .........................................................................................6

Purpose of the Study ................................................................................................7

Significance of the Study .........................................................................................9

Research Questions and Hypotheses .....................................................................11

Definitions of Terms ..............................................................................................12

Research Design.....................................................................................................13

Assumptions and Limitations ................................................................................14

Limitations and Delimitations................................................................................15

Organization of the Remainder of the Study .........................................................16

CHAPTER 2. LITERATURE REVIEW ...........................................................................17

Methods of Searching ............................................................................................17

Theoretical Orientation for the Study ........................................................................

Review of the Literature ............................................................................................

Synthesis of Research Findings .............................................................................44

Critique of Previous Research Methods ................................................................46

Summary ................................................................................................................48

CHAPTER 3. METHODOLOGY .....................................................................................50

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 Purpose of the Study ..............................................................................................50

Research Questions and Hypotheses .....................................................................51

Research Design.....................................................................................................52

Target Population and Sample ...............................................................................54

Procedures ..............................................................................................................56

Ethical Considerations ...........................................................................................64

Summary ................................................................................................................64

CHAPTER 4. RESULTS ...................................................................................................65

Description of the Sample......................................................................................66

Hypothesis Testing.................................................................................................72

Summary ................................................................................................................77

CHAPTER 5. DISCUSSION, IMPLICATIONS, RECOMMENDATIONS ....................79

Summary of the Results .........................................................................................79

Discussion of the Results .......................................................................................80

Conclusions Based on the Results .........................................................................83

Limitations .............................................................................................................84

Implications for Practice ........................................................................................84

Recommendations for Further Research ................................................................86

Conclusion .............................................................................................................87

References ..........................................................................................................................89

APPENDIX: WORKS CONSULTED ............................................................................108

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 List of Tables

Table 1. Test for Multivariate Outliers .............................................................................72

Table 2. Correlation Matrix for Predictors of ROA .........................................................73

Table 3. GLMM to Predict ROA Including Outliers .......................................................74

Table 4. GLMM to Predict ROE Excluding Outliers ......................................................75

Table 5. GLMM to Predict ROE Including Outliers ........................................................76

Table 6. GLMM to Predict ROE Excluding Outliers .......................................................76

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 List of Figures

Figure 1. Normal Frequency Distributions of ROA and ROE ..........................................67

Figure 2. Time Series of Mean ROA ± 95% CI ................................................................69

Figure 3. Time Series of Mean ROE ± 95% CI .................................................................69

Figure 4. Time Series of Mean Board Size ± 95% CI .......................................................70

Figure 5. Time Series of Mean Numbers of Non-Executive Board Members ± 95% CI ..70

Figure 6. Time Series of Mean Tenure of CEOs ± 95% CI ...............................................71

Figure 7. Time Series of Frequency of Duality and Non-Duality of CEOs ......................71

viii
 CHAPTER 1. INTRODUCTION

The foundation of organizations is governance by rules and policies. The primary

purpose of a business organization is to maximize profits and return on investments for its

shareholders (Wicaksono et al., 2019). Corporate governance establishes the rules and policies of

organizations, and managers implement them. The study of corporate governance has gained

popularity since the financial crisis of 2008 due to accounting scandals and unethical business

practices around the world (Dharmadasa et al., 2014; Kultys, 2016). A lack of corporate

governance within organizations and unethical business practices by large corporations such as

Enron and Worldcom has caused bank failures and closures (Dzingai & Fakoya, 2017).

Corporate governance helps managers to develop strategies, control ownership, and

protect shareholders’ investments by providing a structure within organizations. Chigudu (2020)

suggested that organizations need a corporate governance structure to thrive in a performance-

based global economy. Research studies have shown that organizations with good corporate

governance have improved financial performance and increased value (Manning, 2019).

Corporate governance includes factors involving values, guidelines, and policies that impact the

management and structure of organizations (Crifo et al., 2018). Despite these guidelines,

organizations still have challenges of separation of ownership and control that may cause

weaknesses in their corporate governance systems (Jensen & Meckling, 1976).

The purpose of this study was to determine whether there is a relationship between

corporate governance and financial performance among banks in the United States. Chapter 1

provides a background of the problem, a statement of the problem, the research purpose, the

significance of the research, research questions, definitions of terms, the research design,

1
assumptions, and limitations and delimitations. The chapter concludes with a summary and the

organization of the remainder of the study.

Background of the Problem

The 2008 financial crisis revealed the banking industry’s weakness in control and risk

management. As a result, the banks’ excessively risky behavior within the housing market

caused the value of securities to plummet, resulting in a global financial crisis (Ayadi et al.,

2019). The primary cause of this financial crisis was a lack of corporate governance within the

banks.

Corporate governances are rules and regulations the organization administers to protect

the interests of its shareholders (Mirchandani & Gupta, 2018). Also, many see corporate

governance as how administrators are able to structure and regulate corporations to identify best

practices for policies and procedures. Mirchandani and Gupta (2018) suggested that corporate

governance is the foundation of the company because it sets the organization’s objectives, goals,

and tone in order to provide guidelines for the rights and the responsibilities of shareholders and

managers and to ensure appropriate separation of ownership. The most common components of

corporate governance in publicly traded companies across industries are board size, board

independence, board committees, board diversity, CEO duality, tenure, age, and compensation

(Katarachia et al., 2018).

Previous research concluded that stable corporate governance leads to growth and high

performance within firms (Mathur et al., 2020). Good corporate governance occurs when an

organization follows the established objectives and goals within the corporate governance

system. Furthermore, good corporate governance practices make an organization more

profitable, reduce risk, and allow for smooth operation (Ansari et al., 2017). In addition, good

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corporate governance attracts new investors and additional capital, and it improves firms’ overall

performance (Azim et al., 2018).

Corporate governance has become the main topic of discussion in corporate board

meetings, committee meetings, policy meetings, and leadership seminars (Dzingai & Fakoya,

2017). The interest in corporate governance has increased due to financial fraud, unethical

management practices, restructuring, and bankruptcy. Due to the 2008 financial crisis, a critical

need for improvement and advancement in developing a corporate governance system became

apparent (Malik & Makhdoom, 2016). The 2008 financial crisis led investors to become diligent

in management roles and issues surrounding the crisis’s impact. Managers are responsible for

creating wealth and performing ethical and reliable work in the best interest of the shareholders.

The aim of corporate governance is to align managers’ interests with shareholders’

interests by creating mechanisms to safeguard the rights and interests of the shareholders (Bezo

& Dibra, 2020). These mechanisms can minimize the agency problem between the agent and

principal, particularly in organizations with good corporate governance (Azim et al., 2018; Bezo

& Dibra, 2020). Reducing agency problems provides good corporate governance for managers to

run the organization and implement the company’s mission successfully while maximizing

profits and the firm’s performance (Nurlaily, 2022). If conflicts develop between the manager’s

interests and the shareholders’ interests that result in fluctuations in financial performance, then

this issue may lead to corporate governance issues involving the making of policy decisions

about the optimizing of board size, board independence, board structure, CEO duality, and CEO

age (Kamau et al. 2018).

The primary cause of the financial crisis was a weak and inefficient corporate governance

system (Manning, 2019). Vulnerable corporate governance systems have inadequate monitoring

3
and minimal enforcement mechanisms. Managers may be more likely to neglect agents’

responsibilities when corporate governance is weak. They may fail to achieve shareholders’

goals and instead work in their own best interests rather than the best interests of the

shareholders. Managers’ focus may be on their financial gain rather than on the goals and

objectives of the company. This could lead to unethical practices, poor financial performance,

and company failures. These are the primary hurdles in the implementation of corporate

governance practices. It is essential to analyze the relationships between corporate governance

and financial performance to implement good corporate governance practices (Sarkar & Sarkar,

2018). Research studies show a relationship between corporate governance and financial

performance (Dharmadasa et al., 2014; Malik & Makhdoom, 2016; Vintilă et al., 2015).

However, various components of corporate governance may influence financial performance.

O’Sullivan et al. (2015) examined the relationship between financial performance and board

characteristics and found that board size and CEO tenure positively affected performance.

Vintilă et al. (2015) found a negative association between board size and CEO tenure and

financial performance. According to Ueng (2016), companies that implement effective corporate

governance policies are more likely to have better financial performance.

Financial performance measures stockholder value and gains for capital investors.

According to the research, corporate governance practices have links with financial performance

(Malik & Makhdoom, 2016). Stanley and Wasilewski (2018) suggested that there is no single

measure of financial performance and that the outcome will vary based on industry. Previous

studies have used multiple measures, such as return on assets (ROA) and return on equity (ROE)

(Ahmed & Ndayisaba, 2017; Mirchandani & Gupta, 2018; Vintilă et al., 2015).

4
 The importance of corporate governance in the financial industry may differ from that in

non-financial firms due to the uniqueness of their operations and standard regulations. The nature

of the banking industry may have drawn more attention among researchers (Handa, 2018).

Corporate bank governance may be more rigorous in measuring and monitoring the separation of

control and ownership. Banks are an essential factor in the overall financial health of the

economy. Banks operate in a heavily regulated environment, affecting the corporate governance

process. Due to the 2008 financial housing crisis, regulators and committees focused on the

importance of corporate governance (Chou & Chan, 2018). Banking committees, such as the

BASEL Committee on Banking Supervision, have promoted and established standards for banks.

However, this committee provides no formal regulatory oversight on the banking industry (Al-

Matari et al., 2016). A sound corporate governance system provides accountability and a

transparent approach to making strategic decisions. Shareholders have a vested interest in the

management and structure of organizations.

This study draws on agency theory. In agency theory, the hypothesis underlying

monitoring and managing roles is that the principal delegates work to the agent, causing conflict

between them, which results in agency costs (Wahba, 2015). Separation of ownership and

management has led to different conflicts between the principal and the agent. According to

Jensen and Meckling (1976), this creates an agency relationship and a power optimizer.

Agency theory has been the primary approach in research on corporate governance

(Wahba, 2015). Corporate governance components are essential in aligning managers’ interests

with those of shareholders. Agency theory assumes there are conflicts between management

(agents) and principals (shareholders). These conflicts concern whether management decisions

5
are really in the best interests of shareholders. Agency costs result from monitoring the

separation of ownership and control (Jensen & Meckling, 1976; Kamau et al., 2018).

Managers run day-to-day operations and implement the organization’s mission and core

values. The manager (agent) has the authority to run the organization and implement its goals

and purpose on behalf of the shareholders (principal) (Till & Yount, 2018). These roles lead to a

separation of powers, causing an agency problem. Rodriguez-Fernandez et al. (2014) used

agency theory to investigate the relationship between board characteristics and performance.

Board characteristics provide direction to the financial health of the company. Rodriguez-

Fernandez et al. found that board size had the most significant impact on financial performance.

Wessels et al. (2016) found that the larger the board size is, the less effective the company is.

Statement of the Problem

Corporate governance has received wide discussion worldwide (Kowalewski, 2016). The

deregulation of the banks played a significant role in the financial crisis of 2008 and caused

researchers to take a closer look at corporate governance practices (Chang et al., 2019). The

research literature indicates that corporate governance has a significant influence on the financial

performance of a company (Dharmadasa et al., 2014; Kowalewski, 2016; Mugarura, 2016). Even

though there are several research studies on corporate governance, they focus on non-financial

companies. The problem under study is to what extent is there a relationship between corporate

governance and financial performance in the U.S. banking industry.

The study’s findings expand the body of knowledge on corporate governance and its

relationship with financial performance in the banking industry. Vintilă et al. (2015) indicated

that corporate governance and financial performance were mixed for the technology industry.

This study considers critical components of corporate governance from Vintilă et al.’s research,

6
with a focus on the banking industry. Corporate governance practices include an internal

management mechanism that helps the banking industry to achieve better financial performance.

Corporate governance is fundamental to the success of bank performance. Banks that provide

increased monitoring and greater governance oversight have better financial stability and value

(Handa, 2018).

Purpose of the Study

The purpose of this quantitative non-experimental research study was to identify to what

extent there is a relationship between corporate governance and financial performance for

publicly held companies in the U.S. banking industry. The goal of the study was to extend the

research of Vintilă et al. (2015) on corporate governance in the banking industry. Corporate

governance is defined by board size, board independence, CEO tenure, CEO duality, and

financial performance measured by ROA and ROE. The selected corporate governance

components provide a better understanding of the positive or negative association of financial

performance in the banking industry.

Research studies have shown a relationship between corporate governance and financial

performance. In previous research studies, the relationships between components of corporate

governance and financial performance were inconclusive. Kim (2013) examined the performance

implications of CEO duality on 290 Fortune 1000 companies and found that CEO duality had a

positive association with firm performance when firms had diversification and flexibility. Vintilă

et al. (2015) found a positive association between firm performance and CEO duality within

technology companies. On the other hand, Ansari et al. (2017) found a negative association

between CEO duality and financial performance in the automotive industry. Ansari et al. (2017)

7
suggested that CEO duality negatively affects firms’ performance and that it is necessary to

adjust control and monitoring mechanisms.

The tenure of the CEO may influence the degree of conflict between managers and

shareholders according to agency theory (Mintzberg, 1984; Wessels et al., 2016). Previous

research studies on the relationship between CEO tenure and financial performance were

inconclusive (Bernstein et al., 2016; Park et al., 2018). Vintilă et al. (2015) found an inverse

association between financial performance and CEO tenure. Park et al. (2018) focused on CEOs

in Korean firms and found tenure had no impact on financial performance.

Felício et al. (2014) found a negative relationship between board size and financial

performance within European banks. On the other hand, Suroso et al. (2017) found a positive

relationship between board size and financial performance in Islamic banks. An independent

board comprises non-executive members who oversee the performance of management without

any interest in the organization. Vintilă et al. (2015) found a negative impact on board

independence and financial performance. Tshipa et al. (2018) found no effect on board

independence and financial performance in South African firms. They concluded that their

results had links with cost and lack of knowledge about the operations of these companies.

This study contributes to the existing knowledge base by focusing on the U.S. banking

industry. There is a gap in the literature due to conflicting results between the financial industry

and the non-financial industry in the United States. Consequently, there is a need to explore the

relationship between corporate governance and financial performance. This quantitative non-

experimental research tests agency theory concerning corporate governance and financial

performance (Huang et al., 2012; Peni, 2014; Vintilă et al., 2015). It examines the selected

components of corporate governance and tests the theory in the targeted industry. It gives

8
academic researchers and investors a better understanding of what they could do to improve

corporate governance best practices. This examination under agency theory gives a better

understanding of the importance of the separation of duties between the agent and the principal,

which may assist in minimizing the resulting agency costs. Agency theory covers a set of

behaviors that others can perceive as a hostile challenge (Chambers, 2012). Publicly traded

companies in the banking industry listed on the New York Stock Exchange (NYSE) and

NASDAQ from 2007 to 2016 are included in this study.

Significance of the Study

The significance of this quantitative non-experimental research study is that it contributes

to the existing body of knowledge by extending research on corporate governance and financial

performance in the U.S. banking industry. Previous research on corporate governance in the

banking industry has focused on global economies in developed and undeveloped countries

(Handa, 2018; Mirchandani & Gupta, 2018). In addition, research studies to date have provided

mixed results on the variables of corporate governance and financial performance (Felício et al.,

2014; Park et al., 2018). Thus, extending the research into a new industry may yield

corroborating results.

Significance to Scholars

Financial performance is a key factor in corporate governance research (Park et al.,

2018). The study brings insight into the academic research arena by testing the components of

corporate governance. This study is necessary to examine the relationship between corporate

governance and financial performance. It clarifies the impact of corporate governance

components on financial performance (Bawaneh, 2020; Titova, 2016).

9
Significance to Practitioners

The significance of this research study is that the findings may assist analysts to develop

corporate governance guidelines to analyze, forecast, and assess economic risks. For example, if

this research study finds that financial performance is significantly influenced by the number of

non-executive members, the size of the board, the tenure of the CEO, and/or CEO duality then

analysts may develop guidelines to optimize corporate structure in order to maximize financial

performance. Moreover, investors may apply information about the corporate structure of the

companies that they invest in to monitor their investments and make better financial decisions.

Significance to the Banking Industry

Corporate governance in the banking industry is significant in the structure of banks and

the banking system. This study will be helpful to the banking industry. It will help banks to

determine corporate governance mechanisms that will have the most significant impact on

financial performance. This study may clarify the potential financial impact corporate

governance has on a bank’s financial performance. Corporate governance is an essential aspect

of the financial industry, particularly the banking sector. The financial performance of banks is a

critical factor of the bank governance system that helps to prevent financial instability and helps

to implement best practices within organizations (Boitan & Niţescu, 2019).

This study used secondary data to determine whether corporate governance has any

statistically significant impact on financial performance. The study results may suggest that

banks make financial decisions based on the outcome of the relationship of the corporate

governance components. Also, the study may be useful to investors and regulators, helping them

to make risk assessments based on the bank’s financial performance. Managers who lead

10
organizations with excellent performance often have stable corporate governance within the

organization (Manning, 2019).

This study examines the relationship between corporate governance and financial

performance in the banking industry. The study’s result may help potential investors to make

strategic decisions on their investments.

Research Questions and Hypotheses

The following research questions (RQ), null hypotheses (H0), and alternative hypotheses

(HA) guided the study:

RQ1: To what extent is there a relationship between the number of non-executive

members, the size of the board, the tenure of the CEO, CEO duality, and the financial

performance measured by the ROA within the U.S. banking industry?

H10: The financial performance measured by the ROA within the U.S. banking industry

is not related to any of the following independent variables: the number of non-executive

members, the size of the board, the tenure of the CEO, and CEO duality.

H1A: The financial performance measured by the ROA within the U.S. banking industry

is related to at least one of the following independent variables: the number of non-executive

members, the size of the board, the tenure of the CEO, and CEO duality.

RQ2: To what extent is there a relationship between the number of non-executive

members, the size of the board, the tenure of the CEO, CEO duality, and the financial

performance measured by the ROE within the U.S. banking industry?

H20: The financial performance measured by the ROE within the U.S. banking industry

is not related to any of the following independent variables: the number of non-executive

members, the size of the board, the tenure of the CEO, and CEO duality.

11
 H2A: The financial performance measured by ROE within the U.S. banking industry is

related to at least one of the following independent variables: the number of non-executive

members, the size of the board, the tenure of the CEO, and CEO duality.

Definitions of Terms

The following terms are commonly used in corporate governance and financial

performance research studies.

Board Independence: Board independence occurs when the board contains non-executive

members (Duppiati et al., 2017). Independent board members usually have diverse backgrounds

and bring professionalism to the organization (Vijayakumaran, 2019).

Board of Directors: The board of directors is as a group of individuals elected by the

company’s shareholders to govern and represent the shareholders’ interests and to ensure that

management acts on their behalf (Crifo et al., 2018). For the purposes of this study, board

members have voting rights on the board. A board of directors typically includes the chairman,

vice-chairman, secretary, and treasurer.

Board Size: The board size is the number of individuals on the board of directors (Handa,

2018). Boards make decisions based on their expertise in various topics.

Chief Executive Officer (CEO): The CEO is an individual who holds the highest position

within a company. The board of directors usually elects the CEO to manage the operations of an

organization (Bernstein et al., 2016). The CEO carries out the organization’s

mission/vision/goals as directed by the Board of Directors.

CEO Duality: CEO duality occurs when one individual is both the CEO and chairman of

a company (Handa, 2018).

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 CEO Tenure: CEO tenure is the length of service measured in years in a CEO position

(Bernstein et al., 2016).

Corporate Governance: Corporate governance is a structure of rules, best practices, and

processes that provides effective leadership and guidelines for companies (Dzingai & Fakoya,

2017). An effective corporate governance system maintains shareholders’ investments and

strengthens a company’s performance. Corporate governance has multiple indicators, including

but not limited to board size, board independence, board committees, board diversity, CEO

duality, CEO tenure, CEO age, and CEO compensation.

Financial Performance: The financial performance of an organization provides an

understanding of its value. It offers reliable information and a reflection of the company that is

necessary to obtain growth and profit and enable the organization to achieve strategic goals

(Bassiouny, 2016). Financial measures indicate revenue growth and value, and they can help

shareholders to make strategic decisions (Stanley & Wasilewski, 2018). The most common

financial measures in use are Tobin’s q, ROA, and ROE.

Research Design

Underpinned by post-positivist ontology and a quantitative epistemology, this research

study involved the implementation of a retrospective causal-comparative design, which is

generally defined as a type of non-experimental investigation that is performed to explore the

potential causes for, and/or the consequences of, the relationships that already exist between

individuals who have already been classified into mutually exclusive groups (Thyer, 2012). A

retrospective causal-comparative design was appropriate because the purpose of this study was to

analyze secondary data to examine the consequences of the characteristics of groups of

individual board members (specifically the number of non-executive members, the size of the

13
board, the tenure of the CEO, and CEO duality) on the financial performance of the U.S banks

governed by the board members.

Assumptions and Limitations

Research creates new knowledge and understanding in a field or discipline (Zyphur &

Pierides, 2019). All studies contain assumptions, and they affect how the research proceeds

(Wolgemuth et al., 2017). This study utilized a post-positivist approach to generate a bias-free

interpretation of the data, minimizing influence and resulting in an objective outcome (Darby et

al., 2019; Zyphur & Pierides, 2019).

General Methodological Assumptions

The general methodological assumption is that the financial data for the study are

accurate and reliable. This study used secondary data collected by others for a different purpose

(Martins et al., 2018). These data came from the annual 10–K reports from the SEC. They are

audited data, and they should be materially free of errors.

Theoretical Assumptions

Agency theory is the theoretical framework. Although other theories may relate to the

research topic, agency theory should support the problem based on the literature. Agency theory

is built on the assumption that conflicts occur between management (agents) and principal

(shareholders) (Roudaki, 2018). According to Roudaki (2018), agency theory governs the

relationship between corporate governance variables and financial performance.

Topic-Specific Assumptions

Another assumption is that the measurement of the variables in the study was accurate

and dependable. The main study variables were ROA and ROE. A further assumption is that

14
there is a relationship between corporate governance and financial performance (Vintilă et al.,

2015).

Assumptions About Measures

The statistical method used in the study was multiple linear regression (MLR). MLR

measures the relationship between corporate governance and financial performance (Richardson,

2015). This measure of analysis should provide an accurate assessment of the information the

banks have reported. The ROA is the result of dividing the net income by the total assets

(Terjesen et al., 2015). The ROE is the result of dividing the net income by the total equity

(Kevser & Elitaş, 2019). Any positive or negative association is based on the average for the

banking industry.

Limitations and Delimitations

Limitations are restrictions on a research study that are generally out of the researcher’s

control (Theofanidis et al., 2019). Delimitations are researcher choices that keep the scope of the

study manageable.

Limitations

The main limitation is that only secondary data were available. It is unknown if other data

outside the data selected for this study would provide different results.

Delimitations

The study focuses on only one sector of the financial industry, i.e., commercial banks in

operation between 2007 and 2016 in the United States. Research indicates that the quality of

corporate governance has multiple indicators, including but not limited to board size, board

independence, board committees, board diversity, CEO duality, CEO tenure, CEO age, and CEO

15
compensation. This study examined only four indicators: board size, board independence, CEO

tenure, and CEO duality.

Organization of the Remainder of the Study

Chapter 1 has provided an overview of the research study. It has included the background

of the problem, the statement of the problem, the purpose and significance of the research study,

the research questions, definitions of terms, the research design, assumptions, and limitations and

delimitations.

Chapter 2 provides an overview theoretical framework and a review of the published

literature. It includes the methods of searching, the theoretical orientation of the study, a review

of scholarly, peer-reviewed articles on corporate governance, CEO characteristics, and financial

performance within the industries, including the financial industry. Chapter 3 describes the

methodology and research design for the study. It describes the research purpose, questions,

target population, sample, and data collection.

Chapter 4 gives the results of the study. It includes a review of the sampling, data,

hypothesis testing and findings. Finally, Chapter 5 concludes with a discussion of the results, a

review of limitations and assumptions, and recommendations for further study.

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 CHAPTER 2. LITERATURE REVIEW

The aim of this quantitative non-experimental research study was to identify the extent to

which there is a relationship between corporate governance and financial performance. The

phenomenon of corporate governance remains the central aspect of an organization’s success;

thus, continuous research is necessary on this topic (de Villiers & Dimes, 2020). This research

study expands the knowledge in the existing literature by focusing on corporate governance in

the U.S. banking industry. This analysis of the relationship contributes to additional research on

the corporate governance literature in relation to financial performance. The corporate

governance components in this chapter relate to the framework of corporate governance seen

through the lens of agency theory.

This chapter includes a review of the literature on the research topic. It examines the

existing literature to build the foundation for the theoretical framework covering corporate

governance and financial performance. The purpose of the literature review is to analyze and

critique the current knowledge on the topic. This chapter discusses the methodology for

obtaining the literature and the theoretical framework of the study, and it gives a review of the

literature, a synthesis of the research findings, and an analysis of the reviewed research.

Methods of Searching

The topic studied was the relationship between corporate governance and financial

performance in publicly traded listed U.S. banks on the NYSE and NASDAQ. The main source

of literature was the Capella University Library. The primary search used the following

databases: ABI/INFORM, Business Source Complete, ProQuest Central, Sage Research

Methods, Accounting, Tax, & Banking Collection, ScienceDirect, and Google Scholar. Filtration

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of the research within the database followed to search for peer-reviewed and scholarly journal

research articles.

Analysis of the search results involved reading and reviewing them based on their

relevance to the topic. The next stage was to compile, sort, and organize the sources in an Excel

spreadsheet. This strategy highlighted the most recent articles. In addition, references to other

bodies of literature led to seminal and core literature articles that formed the basis for the

theoretical framework of the study.

The search method turned up various peer-reviewed scholarly articles. These articles

came from published sources, such as the Journal of Finance, Accounting and Management,

Review of Accounting and Finance, Journal of Economics and Finance, Global Business and

Management Research, and Corporate Governance. In addition, the search included the

following terms used to obtain the sources from the database: agency theory, financial

performance, corporate governance, board size, board independence, firm performance, CEO

characteristics, CEO tenure, CEO duality, banking industry, United States banks, financial

institutions, return on assets, and return on equity.

Theoretical Orientation for the Study

Agency theory provided the theoretical framework for the study. Agency theory is one of

the most well-known theoretical frameworks for research about organizations (Panda & Leepsa,

2017). Ideas about agency theory originated with Berle and Means (1932), who analyzed

corporate structures and management responsibilities. They believed that the corporate economic

system existed under a social contract that required management to assume the responsibilities of

operations and control of corporations. Berle and Means argued that managers could use the

18
control of corporations for their own interests. Jensen and Meckling (1976) further developed

agency theory with the existence of a contractual relationship between the principal and agent.

Understanding agency theory includes understanding a fundamental contractual

relationship. The basic premise behind agency theory is the existence of a contractual

relationship that occurs when the principal (i.e., shareholders or owners) appoints an agent (i.e.,

executive managers) to make decisions and act on behalf of the principal (Panda & Leepsa,

2017). The agent represents the principal in making decisions that may not lead to maximizing

shareholders’ wealth. Agency theory assumes that control mechanisms are necessary to avoid

conflicts of interest (Nassir Zadeh et al., 2018). Principals invest in organizations, and they also

take the risk of the company failing, while the agents assume responsibility for an organization’s

operations (Ghazali & Bilal, 2017).

The seminal work of Jensen and Meckling (1976) introduced a positivist theory approach

to the economics literature. The continuous advancement of research on agency theory led to

interest in the finance and accounting field of research. The underlying assumption of agency

theory is that it is necessary to monitor and manage roles when the principal delegates work for

the agent, which can cause conflicts of interest between the principal and agent, resulting in

agency costs (Wahba, 2015). The foundation of the principal-agent relationship is trust and rules.

There is extensive literature in agency theory on managing the risk through the lens of a

contractual relationship between principal and agent. Agency theory states that the principal

needs a control mechanism to manage the trust. This control mechanism often comes with a cost,

known as agency cost. Agency costs maintain the relationship between the parties. They include

all costs of monitoring, audits, bonds, etc. (Pham et al., 2020). The contractual relationship exists

when the principal appoints the agent to make decisions and act on behalf of the principal. The

19
owner (principal) invests and takes on the risk of economic benefits, while the agent

(management) takes on the risk of responsibilities (Ghazali & Bilal, 2017).

Agency theory has been the theoretical framework for many studies in management,

economics, finance, and accounting (Eisenhardt, 1989). Eisenhardt (1989) described the two

pathways of agency theory: positivism and principal agent. First, a positivist approach to agency

theory focuses on conflicting goals between shareholders and management in a corporate setting.

Conflicting goals can result in an agency problem. Conflict can arise between principals and

agents when the agreement goals between the principal and the agent are unmet. Also, conflict

can occur when there are risk preference differences between principals and agents. An example

would be when the principal holds the financial risk. This may occur when the agent knows more

than the owner, resulting in opportunistic behaviors. As a result, the agent fails to comply with

the terms of the contract (Pham et al., 2020). Still, the agent incurs different risks, such as being

fired for making a wrong decision or acting in self-interest instead of the company’s interest

(Eisenhardt, 1989). The second pathway of agency theory that Eisenhardt described focused on

aspects of the relationships between principals and agents. Conflict may arise when the goals of

the contract are not met and the agent is not performing in best interests of the principal. Agency

theory can apply to various agency relationships between principals and agents, and

mathematical models can predict the effects. Tribbitt and Yang (2017) stated that the principal-

agent relationship can be challenging for the principal to manage and monitor to determine if the

agent is reaching the agreed-upon goals. Since its inception, researchers have critiqued agency

theory.

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 Review of the Literature

The purpose of this literature review is to identify the gaps in the literature and to bring

clarity through additional research. The literature examines the relationship between corporate

governance and financial performance among various organizations. This study explores the

relationships between these two factors through the lens of agency theory. Agency theory

focuses on the contractual relationship between the principal and agent that derives from the

separation of ownership and management (Zainuldin et al., 2018).

The fundamental assumption of agency theory is that principals and agents are

performers in an agreement who seek to maximize their own agendas in each situation (Johannes

Teichmann, 2019). The principal incurs monitoring costs to monitor and attempt to control the

agent’s opportunistic behavior. This principal-agent relationship also creates agency costs (Panda

& Leepsa, 2017). Despite these controls, it is generally impossible to ensure an agent will act in

the principal’s best interests on all occasions. Agents may be so strong-minded that they continue

to pursue their own goals regardless of the mechanisms in place (Johannes Teichmann, 2019).

Agency theory explains how implementing governance mechanisms addresses agency problems

by regulating agents’ opportunistic behavior (Fayezi et al., 2019). Scholars have researched the

role of corporate governance on organizations using agency theory (Zainuldin et al., 2018).

The literature review begins with an exploration of corporate governance through the lens

of agency theory. Corporate governance exists as the framework for corporate structure within an

organization. It entails a system of controls, polices, and guidelines to meet the company’s

objectives and goals while maximizing its profits (Bensadon, 2021). Corporate governance

focuses on reducing agency costs between shareholders and management (Kultys, 2016). It helps

to manage any conflict between the two parties by implementing corporate governance

21
mechanisms (Kyere & Ausloos, 2020). This literature review discusses agency theory and

corporate governance, corporate governance characteristics, agency theory and financial

performance, financial performance measures, and corporate governance and the banking

industry.

Agency Theory in Existing Literature

Even though Bendickson et al. (2016) felt that researchers should not use agency theory

in studies about entrepreneurship, Tribbitt and Yang (2017) examined the relationship between

board dependence and board members’ influence on corporate entrepreneurship using agency

theory. Tribbitt and Yang used secondary data from 350 organizations in the manufacturing and

information industries. The independent variables were the firm’s age, ROA, CEO ownership,

and board size. The dependent variable was corporate entrepreneurship, measured by research

and development costs, patent counts, and business segments. They analyzed the resulting data

using MLR analyses. The results indicated that there was a negative relationship between board

dependence and corporate entrepreneurship. Solomon et al. (2021) believed that entrepreneurs

are an important factor in the economic growth that brings jobs and advancement in technology.

Several studies have examined entrepreneurship through the lens of agency theory

(Cowden et al., 2020; Solomon et al., 2021; Tribbitt & Yang, 2017). Cowden et al. (2020)

examined entrepreneurship using the theoretical framework of agency theory. Entrepreneurs

utilize investors or venture capital firms to increase capital in their business. The principal

(venture capital) and agent (entrepreneur) may have a conflict when the goals of the principal no

longer align with those of the agent (Eisenhardt, 1989; Jensen & Meckling, 1976). Cowden et al.

focused on the moral hazard that exists when the agent takes a higher than normal risk with the

principal’s money. Moral hazard is an agency problem in which the agent behaves recklessly and

22
carelessly, not fulfilling the responsibilities of the agreement. Vijayakumaran (2019) stated that

managerial ownership helps to resolve moral hazards by aligning incentives with the interests of

the shareholders.

Agency theory encourages the implementation of corporate governance mechanisms to

reduce conflicts between managers and shareholders. Audit fees can act as a corporate

governance mechanism to minimize agency problems. An audit fee is the compensation an

auditor receives for the time and effort of the service (Kalsum et al., 2021). External audits can

be costly due to the time and effort an auditor spends examining the financial records. An audit

committee can reduce the costs and enhance the integrity of the financial statements (Farooq et

al., 2018). Salehi et al. (2018) investigated the effects of corporate governance mechanisms and

executive compensations on audit fees in an emerging market. They used 90 companies listed on

the Tehran Stock Exchange from 2009 to 2014. The independent variables were outside

directors, executive compensation, and CEO equity incentive as measured by stock return

volatility and stock price. The dependent variable was audit fees. They analyzed the resulting

data using a multivariate regression model. The results indicated a positive association between

audit fees and executive compensation. The results showed that companies pay more audit fees

when they give CEOs more incentives. However, the results also showed that board

independence did not influence audit fees, which is not consistent with agency theory.

Parker et al. (2018) examined how agency theory can help researchers to understand the

relationships in public/private partnerships (e.g., government, non-government organizations,

and private corporations) in a case study of an international development project to learn more

about communication and coordination challenges. Public/private partnerships are usually

between governments and private corporations when the government (principal) hires a private

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corporation as the agent. The goal of the principal is to maximize profits; however, in a

government setting, the goals are generally different, and this creates the complex of goals of

agency theory (Gupta & Kumar, 2020). Parker et al. found that public/private partnerships in

international development projects are complex. Since public partnership goals are different than

private partnership goals, Vining et al. (2021) recommended implementing effective

communication to focus on the product efficiency of the outcome instead of maximizing

profitability.

Critiques of Agency Theory

Bendickson et al. (2016) reviewed the literature to explore how agency theory emerged

from economic and social development studies. There were three main sections in their study.

First, they provided an overview of the background of agency theory. Second, they offered a

review of how agency theory developed chronologically. Third, they described agency theory in

the applied field of business and entrepreneurship. They determined that knowledge about

agency theory is dated and its application is limited. Agency theory developed from economics

and typically came from a corporate setting with multiple shareholders (Ahola et al., 2021).

Bendickson et al. believed that agency theory might not be as effective, for example, to apply in

studies about entrepreneurship.

Kultys (2016) presented various controversies about agency theory as a theoretical basis

to understand corporate governance (Zattoni et al., 2020). The review included the basic

elements of agency theory, including the limitations of its application to corporate governance.

Kultys believed that agency theory had a limited ability to model agency relationships. Kultys

discussed three critiques of agency theory.

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 First, the control mechanisms of agency theory are expensive and ineffective because the

mechanism protecting shareholders’ interests can interfere with strategic decisions. Second, there

are legal and contractual concerns about the relationship between shareholders and the

management basis of agency theory. Shareholders are not the only group that bears the financial

risk. Stakeholders contribute resources that create value, and they assume financial risk. Third,

shareholders are not the owners of organizations; they are the owners of organizations’ stock.

Risk can move from shareholders to other groups, such as employees. Sanfelix and Puig (2018)

conducted a study through the lens of agency theory in a principal (franchisor) and agent

(franchisee) relationship. This model of agency relationship developed from a new perspective of

knowledge transfer onto contracts. The agency problems occur when the franchisee starts a

business and pays the franchisor an initial fee followed by royalties. The franchisor then builds

and organizes the model of work of the business. Sanfelix and Puig established that the agency

costs are the sum of the costs for the creation and execution of contracts, the costs of monitoring

the agent, and any costs resulting from any residual loss. Kultys (2016) argued that relying only

on the premises of control and monitoring mechanisms is costly. Some researchers agree that

agency cost includes hiring the agent, tracking, monitoring of the agent’s responsibilities and

achievements, and audit fees (Bendickson et al., 2016; Kultys, 2016; Parker et al., 2018).

Agency theory may lead to an unrealistic description of the relationships involved in

corporate governance. Kultys (2016) believed that it is necessary to consider organizational

factors like company size, employees, and location when modeling and studying the

relationships between subjects. Zattoni et al. (2020) argued that, depending on the institutional

setting, corporate governance practices may have a complex outcome for relationships within an

25
industry; therefore, other theoretical perspectives are necessary to study the relationships,

corporate governance, and firm performance.

Zardkoohi et al. (2017) reviewed the literature of agency theory and presented a

comprehensive framework of principal-agent relationships. They discussed three problems

relating to the principal-agent relationship: agency, principal, and confluence. Agency problems

occur when the interests of the agents and the principal diverge and when agents possess self-

interest. Bosse and Phillips (2016) reviewed the literature to examine the implications of

applying the bounded self-interest assumption of agency theory, and they suggested that agency

theory does not support a clear understanding of an agent’s behavior and costs. They argued that

the bounded self-interest assumption provides a more accurate lens for explaining the agency

problem for firms and their CEOs than the pure self-interest assumption. Bosse and Phillips

believed that if CEOs received unfair treatment, organizational costs would increase and become

costly. Zardkoohi et al. argued that guile is a human tendency, and it is not restricted to agents.

Principal problems occur when the interests of agents and principals diverge and when the

principal possesses self-interest. Also, confluence problems may arise when agents and

principals behave opportunistically against a third party’s interests. Zhang and Qian (2017)

suggested that contractors behave opportunistically in the construction industry, where they are

motivated to pursue self-interest at the expense of the owners. Longo and Giaccone (2017)

explored corporate policies that encouraged collaboration to prevent opportunistic behavior

within innovation hubs.

Opportunistic behavior can violate and disrupt the contract relationship (Arıkan, 2018).

Longo and Giaccone (2017) conducted a case study of a leading high-tech company. They

collected data using semi-structured interviews with directors and managers. Their results

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indicated that commitment, psychosocial incentives, and social control were the bases of

corporate policies. Corporate policies encouraged collaboration and prevented negative

opportunistic behaviors. Longo and Giaccone found that firms play a central role in aligning

participants’ interests toward shared values and common goals. Zardkoohi et al.’s (2017) review

of the agency theory literature sheds light on firms’ behavior by examining whether stakeholders

are victims of agency problems, principal problems, or confluence problems.

Agency Theory and Corporate Governance

Although there are mixed reviews on the origin of corporate governance, most scholars

agree that corporate governance originated at least in the 1930s (Wells, 2010), when separation

of ownership and control was beginning to become problematic in the corporate world. Agency

theory provides a framework for corporate governance to manage agency problems (Geddes,

2020). Corporate governance can create guidelines and control of management on behalf of the

shareholders and maximize wealth while reducing cost (L’Huillier, 2014). Monitoring

mechanisms should minimize conflicts of interest between shareholders and managers

(L’Huillier, 2014; Wahba, 2015). The role of corporate governance in the United States has

received attention due to the global financial crisis of 2008. Adnan and Ahmed (2019) believed

that the purpose of corporate governance is to measure and satisfy the shareholders’ goal of

maximizing their wealth. The crisis resulted from weak and poor control over corporate

governance.

Corporate governance practices often take the form of guidelines and principles within an

organization for making business decisions and controlling the processes. Mathur et al. (2020)

stated that corporate governance is vital to the growth and success of a firm because it brings

transparency, accountability, responsibility, and fairness. The structure of corporate governance

27
entails the existence of rules on and responsibilities for making decisions for individuals within

the company (Pham et al., 2020). The corporate governance system usually reflects board

characteristics, the ownership structure, CEO characteristics, and the use of internal and external

auditors (Vintilă et al., 2015)

Adnan and Ahmed (2019) reviewed the literature identifying critical determinants of the

corporate governance framework, the underlying explanations for the corporate governance

challenges, and the confirmation of agency problems within firms. Corporate governance has

both internal and external mechanisms. These mechanisms are necessary to reduce agency cost

(Kyere & Ausloos, 2020). The internal control mechanism consists of the management and board

of directors, who provide oversight at the levels of their responsibilities and duties. It includes

policies and procedures for the separation of control and power within the organization

(Bensadon, 2021). The external control mechanisms involve equity and debt holders, who

provide oversight outside the organization. They include the legal and government policies that

are necessary for corporate compliance. Adnan and Ahmed (2019) believed that firms need to

implement balancing internal mechanisms to reduce the overall costs of agency problems.

Agency problems still exist in corporations, and they can have significant costs.

Cunha and Rodrigues (2018) analyzed the relationship between the mechanism of

corporate governance and the level of corporate governance determinant. They used secondary

data from annual reports of 263 non-financial Portuguese companies. The independent variables

were ownership concentration, foreign investors’ ownership, board of director ownership, board

size, board independence, CEO duality, director stock options, external audit quality, debt

leverage, and degree internationalization. The dependent variable was the disclosure index,

measured by 82 corporate governance attributes. The researchers analyzed the resulting data

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using the ordinal logistics regression model. The results indicated that foreign investors’

ownership, board size, board independence, external audit quality, and degree of

internationalization had a significant and positive influence on corporate governance disclosure

levels. Ownership concentration, CEO duality, and debt leverage had a significant and negative

influence on corporate governance disclosure levels. There were no significant results for board

of director ownership or director stock options. Nguyen (2022) investigated determinants of

governance in banks and found that governance structure has a significant impact on bank

performance and risk structure. Cunha and Rodrigues suggested that companies with higher

shareholder ownership concentration and CEO duality disclosed less information regarding their

governance structure. Cunha and Rodrigues suggested that corporate governance plays an

important role within companies to help to mitigate agency problems and increase corporate

governance determinants. Corporate governance is essential to a company’s success because it

resolves any conflicts among shareholders and executives (A. Ali et al., 2022).

Katarachia et al. (2018) analyzed the determinants of corporate governance disclosures

on the dissemination level. They used secondary data from 110 Indian companies listed on the

Nifty 500 Index. The independent variables were board diversity, board size, CEO duality, board

meetings, financial performance, Tobin’s q, financial leverage, and company size. The dependent

variable was the Governance Disclosure Index, as reported on the Bloomberg online database.

Katarachia et al. (2018) analyzed the resulting data using the fixed effects regression model. The

results indicated that the number of women on the board, board size, CEO duality, number of

board meetings, financial performance, Tobin’s q, and financial leverage negatively affected the

dissemination level of corporate governance information. The company’s size had a positive

effect on the dissemination level of corporate governance information. Vintilă and Nenu (2015)

29
found that the size of a company impacts its financial performance when analyzing key

determinants of financial performance in Romanian companies listed on the Bucharest Stock

Exchange. Katarachia et al. (2018) suggested that identifying key determinants in corporate

governance information can help to address agency conflicts between shareholders and

managers.

Under agency theory, information asymmetry occurs when one party has more

information than the other, causing an agency problem (Hamad et al., 2020). To reduce the

problem, transparency provides a way for the parties to monitor the activities and performance of

the contract. It enhances public accountability and is an effective tool of communication between

the principal and agent (Stefanescua et al., 2016). Corporate governance is key to a company’s

profit longevity. Ganesan et al. (2017) investigated the influence of internal audit function on the

relationship between corporate governance characteristics and the level of sustainability

disclosure. They used secondary data from annual reports of 120 manufacturing companies. The

independent variables were board size, board independence, and CEO duality. The dependent

variable was sustainability disclosure, and the internal audit function was the moderating

variable. They analyzed the resulting data using the partial least squares regression model. Their

results indicated that CEO duality had a significant negative relationship on the level of

sustainability disclosure. Ganesan et al. suggested that sustainability disclosure levels reduce

when there is CEO duality on the board.

Corporate Governance Characteristics

The main corporate governance characteristics in organizations are the size of the board,

board independence, board committees, board diversity, CEO duality, CEO tenure, CEO age,

and CEO compensation (Katarachia et al., 2018; Vintilă et al., 2015). Board characteristics

30
impact decision-making processes (Lu & Boateng, 2018). Corporate governance is consistent

with agency theory, as it can result in a conflict of interests when ownership and control of the

firm are separate, with managers serving their interests rather than the interests of shareholders

(Cunha & Rodrigues, 2018).

M. Ali (2018) examined the indirect effects of organization size on organizational

performance via board size. M. Ali used secondary data from 288 Australian organizations. The

independent variable was organization size. The dependent variables were organizational

performance, as measured by operating revenue and net operating profit. M. Ali analyzed the

resulting data using the hierarchical regression model. The results indicated that organization

size has a positive effect on board size, and that board size positively affects organizational

performance. Also, the findings indicated that the positive relationship between organization size

and board size was stronger in manufacturing organizations than in service organizations.

Manufacturing organizations often had larger boards than service organizations. M. Ali

suggested that a larger board comes with greater skills and resources to advise management on

important issues.

Rodrigues et al. (2020) examined the impact of governance mechanisms on dividend

policy. They used secondary data from 390 European corporations, excluding banks and

insurance companies. The independent variables were board size, board independence, board

meetings, board committees, board diversity, CEO duality, CEO compensation, and ownership

concentration. The dependent variable was the dividend. They analyzed the resulting data using a

panel data regression model. Their results indicated that board size, board independence, board

meetings, board committees, board diversity, CEO duality, and CEO compensation positively

influenced dividend yield. Their study showed that corporations with higher board diversity and

31
board size are more likely to pay dividends. On the other hand, ownership concentration had a

negative influence on dividend yield. Rodrigues et al. suggested that corporate governance

influences the payment of dividends based on the interest of the shareholders.

Vijayakumaran (2019) examined the impact of ownership, board characteristics, and debt

financing on agency costs. Vijayakumaran used secondary data from 1,420 non-financial

Chinese firms for 2004–2010. The independent variables were ownership structure, board size,

board independence, and leverage. The dependent variable was agency cost. Vijayakumaran

analyzed the resulting data using a multiple regression model. The results indicated that

managerial ownership and debt are effective corporate governance mechanisms in mitigating

agency costs. However, Nguyen (2022) found that agency costs had a negative effect on

ownership structure, board size, and board independence. Thus, the design of the corporate

governance structure may have implications for agency cost

Boateng et al. (2017) examined the effects of corporate governance mechanisms on

capital structure decisions in firms. They used secondary data from 2,386 Chinese non-financial

firms from 1998–2012. The independent variables were ownership concentration, board

independence, and CEO duality. The dependent variable was the long-term debt ratio. They

analyzed the resulting data using an MLR model. The results indicated that there is a significant

positive relationship between independent directors and long-term debt. In addition, the results

showed that there is a significant negative relationship between ownership concentration and

long-term debt. Boateng et al. stated that concentrated ownership leads to efficient monitoring.

Nguyen (2022) suggested that a large concentration of ownership can reduce agency cost.

Mgammal et al. (2018) examined the impact of corporate governance mechanism on tax

disclosures. They used secondary data from 286 non-financial Malaysian companies from 2010–

32
2012. The independent variables were board compensation and managerial ownership. The

dependent variable was tax disclosures. They analyzed the resulting data using an MLR model.

Their results indicated that board compensation and managerial ownership did not significantly

impact the tax disclosure level. Mgammal et al. stated that larger firms tend to disclose more

information than smaller firms.

Habtoor et al. (2019) examined the impact of ownership structure on corporate risk

disclosures. They used secondary data from 307 non-financial Saudi companies from 2008–

2011. The independent variables were government ownership, royal ownership, family

ownership, institutional ownership, executive directors’ ownership, and non-executive

ownership. The dependent variable was corporate risk disclosures. They analyzed the resulting

data using a multiple regression model. Their results indicated that board government ownership

and royal ownership had a positive association with corporate risk disclosures. On the other

hand, family ownership and institutional ownership had a negative association with corporate

risk disclosures. Habtoor et al. stated that the role of ownership structures allows for a better

understanding of the effectiveness of corporate governance mechanisms.

Outside directors bring value and professionalism to the organizations (Vijayakumaran,

2019). Board independence represents the ratio of independent board members to overall board

members. The literature review on board independence had mixed results. Kanojia et al. (2020)

found that outside directors had no significant relationship with financial performance in Indian

companies. Naji and Haron (2019) indicated that the higher the board’s independence, the

greater the board’s ability to deliver independent management oversight. Thompson et al. (2019)

suggested that independent directors bring a level of professionalism and authority that could

increase firms’ value and prestige. Tshipa et al. (2018) defined board diversity as various

33
features of board members, such as gender and ethnicity. Feils et al. (2018) suggested that boards

of directors have a right to participate in the decision-making of the board and that board

diversity contributes to the economic success of firms.

According to Tshipa et al. (2018), board committees are an essential aspect of board

structure. Establishing such committees can lessen the workload at the board level and allow

board members to focus on specific topics and to make effective decisions. It also creates an

extra layer of monitoring to improve corporate governance and the decision-making process.

Toumeh and Yahya (2017) suggested that audit committees can improve the quality and

transparency of corporate governance. Handayani et al. (2020) examined the effect of corporate

governance on financial performance and value within Indonesian firms, finding that audit

committees minimize agency costs resulting in positive effects. Mustafa et al. (2018) concluded

that audit committees minimize agency costs for firms in Turkey.

CEOs are the most critical people in an organization, and they can influence the image of

the company (Martin & Butler, 2017). They influence others and guide control structures and

strategic decisions. They implement the rules and structure of the company (Altarawneh et al.,

2020). The board of directors appoints the CEO. The role of CEOs is to manage the day-to-day

operations of the organizations. CEOs often make financial decisions that have an impact on the

performance and the value of the company. In addition, the CEO’s role is to carry out the

organization’s mission/vision/goals as directed by the board of directors (Arayssi, & Jizi, 2019).

Under agency theory, CEOs’ level of authority may develop into a self-interest in maximizing

their power for their own benefit (Acero & Alcalde, 2020; Martin & Butler, 2017).

Sigler (2015) examined the relationship between the age of the CEO and capital

investment. Sigler used secondary data from 222 technology firms from 2007–2010. The

34
independent variable was the CEO’s age. The dependent variable was a capital investment.

Sigler analyzed the resulting data using a regression model. The results indicated that the age of

the CEO’s company had a negative impact on capital investment. Sigler stated that CEOs prefer

to invest less as they grow older. Johan and Sari (2020) examined the impact of CEO

characteristics on the financial performance of 28 banks from 2014–2018. The independent

variable was the CEO’s age, education, tenure, and duality. The dependent variable was a return

on equity. Johan and Sari analyzed the resulting data using a regression model. The results

indicated that the age of the CEO’s company had a positive impact on financial performance.

The CEO’s education tenure and duality has no impact on financial performance. Johan and Sari

suggested that older CEOs have the skills and experience to manage the success of organizations.

Martin and Butler (2017) suggested that CEOs develop self-interested behavior that can

cause conflicts with shareholders. Agency theory addresses this conflict by implementing a

monitoring mechanism to reduce the conflict. Shareholders elect the board of directors to

monitor the operations of the CEO and to ensure that the duties and roles are in place per the

contract. The monitoring mechanism may include incentives to agents. Since the CEO has the

power to promote, select, and reward senior management, this influences the decision-making

that may affect the financial performance (Qitong et al., 2018).

Agency Theory and Financial Performance

The goal of an organization is to maximize its profit (Wicaksono et al., 2019). This goal

is usually reflected in the financial performance. To achieve a satisfactory financial performance,

the principal hires agents (managers). Managers have the authority to manage the operations of

the company. The value of the financial performance can measure the value of a company.

Various research studies utilize financial performance as a measuring tool for the firm’s value

35
under agency theory (Aluchna & Kaminski, 2017; Stanley & Wasilewski, 2018; Wicaksono et

al., 2019). For example, Aluchna and Kaminski (2017) found that this measurement strategy

reduced agency costs while improving firms’ performance.

Financial Performance Measures

Financial measures measure revenue growth, shareholders’ value, and strategic decisions

(Stanley & Wasilewski, 2018). The most common financial measures used are Tobin’s q, ROA,

and ROE. Tobin’s q is a market-based performance indicator representing the investor’s

valuation of the firm’s assets. ROA is a performance indicator that measures the effectiveness of

management operations for the company’s profitability (Rasoava, 2019). ROE is a performance

indicator that measures the company profits derived from money shareholders have invested in it

(Vintilă et al., 2015).

Oke et al. (2019) revealed that financial performance improved when Nigerian firms had

independent directors on the board. They examined the relationship between capital structure and

financial performance using secondary data from the annual reports of 115 non-financial

Nigerian firms from 2008 to 2017. The independent variable was the leverage ratio. The

dependent variable was financial performance, measured by ROA. They analyzed the resulting

data using a panel regression model. The results revealed a relationship between capital structure

and financial performance. The significance of the effects depends on debt management strategy,

which may lead to conflicts of interest between the shareholders and management. Board

independence has a key role in the financial performance of companies. A. Ali et al. (2022)

concluded that there is a relationship between financial performance and board independence.

The higher the number of independent board members, the better the financial performance

(ROA).

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Corporate Governance and Financial Performance

Boateng et al. (2017) stated that corporate governance plays a vital role in a firm’s

financial performance. A company’s corporate governance and its structure affect its business

decisions and how it operates. Mao-Feng et al. (2019) examined the impact of ownership

structure and the board of directors on financial performance in firms. They used secondary data

from annual reports of 10,151 non-financial Taiwan firms from 1997–2015. The independent

variables were board structure, board independence, board size, ownership structure, and CEO

duality. The dependent variable was financial performance, measured by ROA, ROE, and

Tobin’s q. They analyzed the resulting data using a panel regression model. The results indicated

that ownership and board structure, measured by non-voting members on the board, had positive

associations with financial performance. On the other hand, the results showed that board size

and CEO duality had a negative association. Mihail et al. (2021) examined the impact of duality

in financial performance on firms in Romania and found that duality had a negative association

with financial performance measured by ROA. CEO duality may limit the ability of board and

executive monitoring.

Rasoava (2019) examined the relationship between executive compensation and financial

performance using secondary data from annual reports of 44 South African firms from 2015 to

2016. The independent variable was executive pay. The dependent variable was financial

performance, measured by ROA, ROE, and Tobin’s q. Rasoava analyzed the resulting data using

a fixed-effect regression model. The results indicated that executive pay had a significant

positive relationship with financial performance.

Wicaksono et al. (2019) examined the relationship between corporate governance and

financial performance. They used secondary data from annual reports of Indonesian firms’

37
property and real estate from 2013–2015. The independent variables were board size, board

independence, audit committee, managerial ownership, and institutional ownership. The

dependent variable was financial performance, measured by ROA. They analyzed the resulting

data using a multiple regression model. The results indicated that board size and institutional

ownership had a positive relationship with financial performance. However, board independence,

audit committee, and managerial ownership had no significant impact on the financial

performance.

Tshipa et al. (2018) examined studied corporate governance and financial performance.

They used secondary data from 90 South Africans firms’ annual reports from 2002 to 2014. The

independent variables were board size, board independence, board committees, board activity,

board diversity, and CEO duality. The dependent variable was financial performance, measured

by ROA and Tobin’s q. They analyzed the resulting data using a multivariate regression model.

The results indicated that board size had a positive relationship with financial performance.

However, the results also showed that board independence, board committees, and board

diversity had an inverse relationship with performance.

Kanojia et al. (2020) examined the relationship between corporate governance and

financial performance. They used secondary data from annual reports of 154 non-financial

Indian firms from 2010–2017. The independent variables were board structure, board diversity,

board independence, board size, board meetings, CEO duality, and CEO busyness. The

dependent variable was financial performance, measured by ROA. They analyzed the resulting

data using a panel regression model. The results indicated that board diversity, board size, CEO

busyness, and CEO duality positively correlated with financial performance. The results also

showed that board meetings had a negative relationship with performance. Board independence

38
had no impact on financial performance. Kanojia et al. argued that when the board size is larger,

it is more efficient at monitoring and brings value to the organization.

Merendino and Melville (2019) examined the relationship between corporate governance

and financial performance. They used secondary data from a database of 65 Italian non-financial

firms listed on the Italian stock exchange from 2003–2015. The independent variables were

board size, board independence, and CEO duality. The dependent variable was financial

performance, measured by ROA. They analyzed the resulting data using a multiple regression

model. The results indicated that smaller board sizes had a positive impact on financial

performance. A. Ali et al. (2022) found that CEO duality had no impact on financial

performance. Merendino and Melville stated that limiting the board to a specific size improves

financial performance because a larger board invites poor communication and complex decision-

making.

Mathur et al. (2020) examined corporate governance and financial performance. They

used secondary data from a database of 65 Indian automobile firms listed from 2014 to 2018.

The independent variables were board size, board independence, financial disclosure, directors’

remuneration, and CEO duality. The dependent variable was financial performance, measured by

ROA. They analyzed the resulting data using a multiple regression model. The results indicated

that board size, board independence, and CEO duality positively impacted financial performance.

However, financial disclosure and directors’ remuneration had no significant impact on financial

performance. Mathur et al. argued that the smaller the board, the better the firm’s financial

performance.

The literature on CEO characteristics and financial performance is inconclusive. Tien et

al. (2013) suggested that the longer CEOs are in the executive position, the more likely agency

39
problems are to arise, and this can negatively impact financial performance. CEOs with longer

tenure have a better understanding and resources that can help firms to achieve strategic goals

more effectively. However, some think CEOs with longer tenure become averse to risk,

preventing growth in the company (Garcés-Galdeano & García-Olaverri, 2019). Researchers

have studied the relationship between CEO tenure and financial performance in the past

(Bernstein et al., 2016; Park et al., 2018). Bernstein et al. (2016) found that tenure had a negative

impact on organizational change. Vintilă et al. (2015) found an inverse association between

financial performance and CEO tenure.

Ming et al. (2019) suggested that the older the CEO, the lower the agency cost. CEOs’

age represents their experience, risk preference, and behavior, which affect the decision-making

process. Prior research found conflicting results on the effect of age on financial performance.

Vintilă et al. (2015) found that CEO age positively impacts financial performance. Older CEOs

are wiser and more experienced; this experience has a positive relationship with financial

performance. However, Huang et al. (2012) found that CEO age had a negative association with

financial earnings. They suggested that older CEOs are more conservative and less likely to

change and take risky decisions.

Under the agency theory, CEO compensation packages can be determinant in a conflict

of interest between managers and shareholders (Mintzberg, 1984; Wessels et al., 2016). Kuo et

al. (2012) suggested that the compensation system can lead to CEOs’ opportunistic behavior

rather than acting in the interests of the shareholders. They found a negative relationship between

CEO compensation and the financial performance of U.S. companies.

40
Financial Institutions

Financial institutions play a vital role in the quality and value of firms (Qian & Yeung,

2015). Kamau et al. (2018) examined the influence of corporate governance on financial

performance in Kenya’s financial institutions. The corporate governance components included in

their study were board diversity, board independence, board skills, board size, and board

committees. The results revealed that board skills and board size had a positive effect on firms’

performance, that board committees had a negative influence on the performance of financial

institutions, and that board independence had no significant impact on financial performance.

Kamau et al. suggested that corporate governance improves management and control, resulting

in improved performance. Bawaneh (2020) studied board size characteristics and their impact on

financial performance within financial institutions in Jordan. They found no significant

relationship between independent directors and board size and financial performance, but they

found a negative relationship between CEO duality and financial performance. Zagorchev and

Gao (2015) examined the impact corporate governance has on profitability of financial

institutions. The results indicated the better corporate governance with a higher number of

mechanisms to identify risk and meet the investors’ goal.

Banking Industry

The corporate governance system in banks differs from non-financial companies due to

the strict regulations and guidelines banks face. Nguyen (2022) believed that agency problems in

the banking industry are more serious than those in non-financial industries due to the increased

costs of bank failures. The corporate financial performance of banks is of crucial importance to

employees, customers, partners, vendors, and, most importantly, shareholders (Ondiba et al.,

2020). During the 2008 financial crisis, the banking industry experienced financial performance

41
challenges that led to the termination of senior managers, bank mergers, and closures. Regulators

around the world implemented codes and guidelines for banks to establish good bank governance

(Haryetti & Rokhmawati, 2021; Nguyen, 2022).

Banks’ corporate governance practices are essential to achieving and maintaining public

trust and confidence in the banking system (Manning, 2019). In addition, corporate governance

in banks can promote economic growth and stability to attract investors within the banking

industry (Orazalin & Mahmood, 2019). Bawaneh (2020) argued that corporate governance could

enhance accountability, improve operational efficiency, and minimize risks to increase bank

performance. The research literature has shown the relationship between corporate governance

and bank performance.

Ondiba et al. (2020) believed that the strength of commercial banks depends on corporate

governance practices, which can enhance financial performance in the banking sector. They

examined the financial performance of banks in Kenya and suggested it provides a measurement

of overall financial health in monetary terms. Orazalin and Mahmood (2019) studied corporate

governance practices and bank performance in commercial banks in Kazakhstan from 2004–

2012. This timeframe extends before and after the 2008 financial crisis. It emerged that banks

with more effective corporate governance practices had higher profits after the crisis. Mili et al.

(2019) examined the independence of the board and its influence on the bank risk within 608

European banks. They found a positive association between board independence and the

performance of the bank.

Gulato et al. (2020) argued that better corporate governance could help to manage the

conflicts between principals and agents within the banking industry in a study examining Indian

banks in 2017. Rashid et al. (2020) stated that corporate governance is the fundamental principle

42
of bank performance. Based on agency theory, Rashid et al. (2020) examined the relationship

between financial performance and corporate governance by researching Bangladeshi banks’

board structure and board composition. They found a positive relationship between corporate

governance and financial performance. Their study is consistent with previous studies’

conclusions that effective corporate governance better aligns executives’ and shareholders’

interests to improve banks’ productivity.

Zhou et al. (2019) examined CEO age and bank risk in European banks from 2005–2014

and found that CEO age leads to enhanced financial performance. Independent boards perform

monitoring and advising functions better. They suggested that CEO age leads to more autonomy

and less monitoring, reducing bank risk. Handa (2018) investigated corporate governance by

examining the role of board structure and financial performance in Indian banks. Handa found

that gender diversity negatively affected financial performance. In addition, Handa suggested

that the board’s size may affect banks’ performance due lack of communications and conflicts

within large committees.

Suroso et al. (2017) analyzed the influence of corporate governance on Islamic banks in

Indonesia and found that strong corporate governance increases investor confidence to invest.

They found that board size, board diversity, education, and board evaluation positively impacted

financial performance. Kevser and Elitaş (2019) analyzed the effects of the ownership structures

of banks on financial performance within Turkish banks and found a positive association. The

research literature has shown the relationship between corporate governance and bank

performance. Qian and Yeung (2017) suggested that corporate governance mechanisms improve

bank performance. They found that inefficient bank monitoring can lead to poor corporate

governance within Chinese banks.

43
 Manning (2019) examined the relationship between corporate governance and financial

performance in U.S. banks. The corporate governance components in the study were board size,

audit committee, and gender diversity. They found that board size, audit committee, and gender

diversity had a significantly positive impact on financial performance. Mamatzakis and Bermpei

(2015) examined the impact of corporate governance in U.S. investment banks from 2000–2012.

The study’s corporate governance components included board diversity, board independence,

board size, CEO duality, CEO age, CEO tenure, and CEO power. The results revealed that board

diversity, board independence, and board size negatively impacted bank performance and that

CEO duality, CEO age, CEO tenure, and CEO power had a positive impact on bank

performance. Mamatzakis and Bermpei (2015) concluded that board size negatively impacts

performance and that this effect increases with boards of more than 10 members. The increase of

agency costs due to monitoring impacts financial performance. Chou and Chan (2018) examined

the impact of CEO characteristics and real earnings in U.S. banks from 2004–2007. The study

examined CEO tenure, CEO power, CEO diligence, and CEO compensation. The results

revealed that CEO tenure and CEO diligence negatively affected the bank’s earnings, while CEO

power and CEO compensation positively affected bank earnings.

Synthesis of Research Findings

The researched literature revealed evidence of a relationship between corporate

governance and financial performance. Therefore, corporate governance is an essential part of an

organization’s success. The primary corporate governance components under study were board

size, board independence, board committees, board diversity, ownership structure, CEO duality,

CEO tenure, CEO age, and CEO compensation (Vintilă et al., 2015).

44
 The research studies on the impact of corporate governance resulted in mixed reviews.

According to Ganesan et al. (2017), corporate governance practices are often set as guidelines

and principles within an organization. Adnan and Ahmed (2019) stated that the aim of corporate

governance is to measure and satisfy the shareholders’ goal of maximizing their wealth.

Investors rely on corporate governance practice for protection and maximization of return on

their investment. Boateng et al. (2017) stated that corporate governance plays an essential role in

the decision-making process and contributes to a firm’s performance value. Business decisions

must take account of corporate governance, its structure, and how it operates.

The role of corporate governance in organizations has received attention due to the global

financial crisis of 2008. However, several research studies have examined corporate governance

and how it has had mixed impacts on financial performance. For example, Funchal and Pinto

(2018) reviewed the impact of corporate governance on corporate performance and suggested

that stronger governance could assure managers would perform in the company’s best interest.

Empirical research provides evidence of a positive relationship between board size and

organizational performance (Katarachia et al., 2018; Feils et al., 2018). However, Mamatzakis

and Bermpei’s (2015) study found a negative impact of board size on bank performance. Kanojia

et al. (2020) found that outside directors had no significant relationship with financial

performance in Indian companies. However, several researchers found a positive association

between board independence and firm and financial performance (Alipour et al., 2019;

Djeutcheu, 2019; Habtoor et al., 2019).

Terjesen et al. (2015) examined the role of female board members in enhancing financial

performance and found a positive association. However, Pucheta-Martínez et al. (2018)

examined gender diversity within Spanish firms and found that female directors negatively

45
affected banks’ financial performance. Mustafa et al. (2018) concluded that audit committees

minimize agency costs for firms in Turkey. Manning (2019) examined the relationship between

corporate governance and financial performance in U.S. banks and found that an audit committee

had a positive association with better results. However, Kamau et al. (2018) found a negative

association between an audit committee and financial performance.

Sarkar and Sarkar (2018) examined CEO duality and financial performance and found

they had negative associations with banks’ financial performance. However, Mamatzakis and

Bermpei (2015) examined the impact of corporate governance in the United States and found a

positive association with financial performance. Bernstein et al. (2016) found a negative impact

on tenure due to organizational change. Kuo et al. (2014) examined the CEO compensation and

financial performance of U.S. companies and found a negative relationship.

The literature review provided justification for the research methods in this study, along

with its constructs and variables. However, it also revealed inconsistencies in the results of

earlier studies. There were limited studies on corporate governance and financial performance in

U.S. banks. Therefore, this study is necessary.

Critique of Previous Research Methods

The research method for this study was a quantitative non-experimental study using a

retrospective causal-comparative design to model the relationships between the components of

corporate governance and financial performance. The literature review examined scholarly peer-

reviewed articles relating to this topic. However, a limited number of studies examined the

relationship between corporate governance and financial performance in a U.S. banking setting.

The research method in these scholarly peer-reviewed articles was to create models based

on regression analysis using data from secondary sources. For example, Ado et al. (2017)

46
utilized a quantitative, non-experimental, multiple regression analysis to examine the relationship

between financial performance and board and audit committee size. Ansari et al. (2017) used a

quantitative, non-experimental, multiple regression analysis to examine the relationship between

financial performance and corporate governance (board size, annual meetings, audit committee,

and CEO duality).

The study aligned to this dissertation research was conducted by Vintilă et al. (2015).

Similar to previous studies, Vintilă et al. used agency theory as the theoretical framework for

their study. Vintilă et al. (2015) researched corporate governance and its influences on financial

performance of U.S. companies listed on the NASDAQ and Dow Jones indexes. While their

research examined the primary components of corporate governance, it excluded financial

companies. In addition, Vintilă et al. gathered data from 2000–2013 for only 51 companies,

mainly in the technology industry. Finally, their study utilized a multivariate regression based on

the generalized least squares method. Bawaneh (2020) researched the impact of corporate

governance on the financial performance of Jordanian financial institutions listed on the Amman

Stock Exchange. Their research examined the financial industry. However, the setting of their

study was not the United States. Their study gathered data from 2013–2017 for 40 companies. It

utilized a Spearman correlation analysis. Johan and Sari (2020) examined the impact of CEO

characteristics on financial performance—measured by return in equity—of 28 banks from

2014–2018. Johan and Sari analyzed the resulting data using a regression model. The results

indicated that the CEO’s education, tenure, and duality have no impact on financial performance.

Hermuningsih et al. (2020) examined the relationship between corporate governance and

financial performance in Indonesian manufacturing companies listed on the Indonesian Stock

47
Exchange from 2014 to 2016. Their study utilized a generalized linear model, which is an

extension of the linear regression model.

The main limitation of previous research methods used to model the relationships

between the components of corporate governance and financial performance is that too much

emphasis has been given to the testing of hypotheses using p-values as indicators of statistical

significance. In the last decade, over 100 articles (too many to be cited here) have severely

criticized the use of hypothesis testing, p-values, and statistical significance (see the Works

Consulted in Appendix). Interpreting irreproducible and fickle p-values to declare a hypothesis

test to be either significant or not significant is considered by many statisticians to be obsolete in

the 21st century and is a violation of the official guidelines for researchers published by the

American Statistical Association (Wasserstein & Lazar, 2016; Wasserstein et al., 2019). Over

800 scientists in over 50 countries have agreed that “It’s time for statistical significance to go”

(Amrhein et al., 2019, p. 305). According to Hurlbert et al. (2019), the classical concept of

statistical significance may be obsolete and unpractical for providing the evidence to test a

hypothesis by dichotomizing a p-value above or below an arbitrary threshold such as .05

(Hurlbert et al., 2019).

Summary

The research topic for this study is the relationship between corporate governance and

financial performance. The literature revealed that there is a relationship between corporate

governance and financial performance. This chapter has explained the methods of searching for

the articles and the theoretical orientation of the study, and it has given a review of the literature,

a synthesis of research findings, and a critique of previous research methods. There were several

studies on corporate governance and financial performance within the financial and non-financial

48
industry. However, these articles mainly focused outside the United States. They evaluated

financial performance measures that aligned with the research questions based on previous

studies.

The literature review has revealed mixed results on the impact of corporate governance

on financial performance. This research study builds upon the existing literature by focusing on

the U.S. banking industry. However, a gap in the literature exists, as the results for the United

States’ financial industry and those for the non-financial industry conflict. Due to the existing

gap, there is a need to explore the relationship between corporate governance and financial

performance further.

Chapter 3 includes the methodology and research design of the study. It describes the

methodology steps and procedures in detail, including the research purpose, questions, target

population, sample, and data collection. Chapter 4 gives the results of the study, along with a

review of the sampling, data, hypothesis testing, and findings. Chapter 5 is the final chapter of

the study. It includes a discussion of the results with the limitations and recommendations of the

study. It also gives personal insight and interpretation; finally, it provides a conclusion for the

study.

49
 CHAPTER 3. METHODOLOGY

Research studies use particular methods to identify, collect, process, and analyze data to

obtain the objective of the outcome. This study utilized a quantitative methodology to examine

the relationship between dependent and independent variables. Chapter 3 begins with a review of

the purpose of the study and provides the research questions and hypotheses. Further, it identifies

the research method and design along with the target population, sample, and procedures to

collect and analyze data. The chapter concludes with the research instrument and ethical

considerations.

Purpose of the Study

The purpose of this quantitative non-experimental multiple regression study was to

identify to what extent there is a relationship between corporate governance and financial

performance for publicly held U.S. companies in the banking industry. The goal of the study was

to extend the research of Vintilă et al. (2015) on the corporate governance of U.S. banks. This

study defines corporate governance by board size, board independence, CEO tenure, CEO

duality, and financial performance, as measured by ROA and ROE. The selected corporate

governance components give a better understanding of the sources of positive or negative effects

on financial performance within the banking industry. Empirical research shows considerable

research on the relationship between corporate governance and financial performance for non-

banking industries within the United States but limited research on the banking industries in the

United States (Tshipa et al., 2018; Vintilă et al., 2015; Wicaksono et al., 2019). In previous

research studies, the relationship between components of corporate governance and financial

performance was inconclusive. These inconclusive results led to further research on corporate

governance of U.S. banks listed on the NYSE and NASDAQ.

50
 Research Questions and Hypotheses

The following research questions (RQ), null hypotheses (H0), and alternative hypotheses

(HA) guided the study:

RQ1: To what extent is there a relationship between the number of non-executive

members, the size of the board, the tenure of the CEO, CEO duality, and the financial

performance measured by the ROA within the U.S. banking industry?

H10: The financial performance measured by the ROA within the U.S. banking industry

is not related to any of the following independent variables: the number of non-executive

members, the size of the board, the tenure of the CEO, and CEO duality.

H1A: The financial performance measured by the ROA within the U.S. banking industry

is related to at least one of the following independent variables: the number of non-executive

members, the size of the board, the tenure of the CEO, and CEO duality.

RQ2: To what extent is there a relationship between the number of non-executive

members, the size of the board, the tenure of the CEO, CEO duality, and the financial

performance measured by the ROE within the U.S. banking industry?

H20: The financial performance measured by the ROE within the U.S. banking industry

is not related to any of the following independent variables: the number of non-executive

members, the size of the board, the tenure of the CEO, and CEO duality.

H2A: The financial performance measured by the ROE within the U.S. banking industry

is related to at least one of the following independent variables: the number of non-executive

members, the size of the board, the tenure of the CEO, and CEO duality.

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 Research Design

Prior to choosing and using an appropriate research design, the researcher adopted a

specific inquiry paradigm to provide an underlying perspective to guide the research. The chosen

paradigm was based on the answer to three questions: 1) What is the nature of reality (ontology)?

2) How is knowledge acquired (epistemology)? 3) What is the process of the research

(methodology)?

Ontology

The researcher adopted the ontological position of a post-positivist, implying that an

objective reality exists outside the human mind, and that facts and feelings can be separated;

however, it is not always possible to understand the nature of reality with absolute certainty

(Blalkie & Priest, 2016). The researcher did not adopt the ontological position of a social

constructivist, implying that facts and feelings cannot be separated and that it is possible to

construct a personal subjective understanding of reality based on the collection and analysis of

qualitative data (Amineh & Asl, 2015).

Epistemology

. The researcher acquired knowledge through the collection and inferential statistical

analysis of sample data to generate findings that could be generalized to the population from

which the samples were drawn. The epistemological position was based on the understanding

that it essential to consider the limitations of quantitative findings because inferential statistical

analysis may sometimes lead to misleading conclusions and erroneous generalizations (Blalkie &

Priest, 2016). The researcher did not support the social constructivist paradigm positing that

knowledge is acquired by subjective interpretation of the underlying meanings that people give

to their lived experiences in a social and cultural context (Amineh & Asl, 2015). Qualitative

52
research was not appropriate because the researcher was not able to go into the board rooms and

interview the board members to collect the evidence needed in order to examine the relationships

between the financial performance and the corporate structures of U.S. banks.

Methodology

Underpinned by the post-positivist ontology and a quantitative epistemology, the chosen

research methodology involved the implementation of a retrospective causal-comparative design.

This research design is generally defined as a type of non-experimental investigation that may be

performed to explore the hypothetical causes for, and/or the consequences of, the relationships

that already exist between individuals who have already been classified into mutually exclusive

groups (Thyer, 2012). A retrospective causal-comparative research design was the most

appropriate to examine the extent to which the four independent or predictor variables

(representing the corporate structure of U.S. banks) may be related to two dependent/criterion

variables (representing the financial performance of U.S. banks) based on the analysis of

secondary data collected between 2007 and 2016, without manipulating any of the variables. A

prospective causal-comparative design could not be implemented in reality to examine the

effects of experimentally manipulating the corporate structures of each bank on the subsequent

financial performances of each bank.

The statistical methodology associated with the causal-comparative research design

involved the construction of a linear model, defined by the following general equation (Hair et

al., 2010):

Y = β 0 + β 1X1 + β 2X2 + ...+ βkXk

Where: Y is the dependent or criterion variable; β 0 is a constant; and β 1, β 2....βk are the

partial regression (β) coefficients for k independent or predictor (X) variables. A GLMM was

53
used because this type of model included the random, or “within subject,” effects caused by the

passage of time and the fixed, or “between-subject,” effects caused by differences between

participants (Detry, 2016; Twisk, 2019).

Target Population and Sample

Population

The target population in the study was publicly traded major banks in the United States

that were listed on the NYSE and NASDAQ. Major banks are a financial industry sector that

provides financial services, including deposits, consumer loans, and commercial loans across the

region. According to Etikan (2016), the population is the total quantity of the researched group.

The study covers 10 years of data, from 2007–2016. The target population came from the

NASDAQ website. There were 40 U.S. banks listed on the NYSE and 270 listed on NASDAQ.

Therefore, the total combined target population of 310 banks includes all U.S. banks listed on the

NYSE and NASDAQ from 2007–2016. The size range was based on market capitalization.

Market capitalization is a company’s value based on the number of outstanding shares times the

share price (Pavone, 2019). The market capitalization value ranges from more than $200 billion

to less than $50 billion.

The inclusion criteria for the convenience sample were that each U.S. bank needed to: (a)

have filed their annual 10–K report for 10 fiscal years between 2007 and 2016, (b) have

published the report on the EDGAR database, and (c) be listed on the NYSE or NASDAQ

exchange. The listing on the NYSE and NASDAQ allowed the sorting of the list by market

capitalization.

Power Analysis

54
 If the sample size is too small, then the results of inferential statistical analysis are

misleading because there is insufficient power to identify significant results (Shieh, 2019).

According to the American Statistical Association (2018), the publication of underpowered

research is not standard practice. However, it was not possible for the researcher to use power

analysis to determine the required sample size to achieve a desired effect (small, medium, or

large) at a given level of statistical significance. Power analysis software, such as G*Power (Faul

et al., 2007) does not calculate the required minimum sample size because the GLMM analysis is

too complicated for G*Power. The achieved statistical power for a GLMM analysis depends not

only upon the desired effect size and the chosen level of statistical significance but also upon the

total number of participants, the total number of repeated measures, the strengths of the

correlations between the repeated measures, and the variability and differences among the effects

(Kain et al., 2015).

In the absence of power analysis, the primary method applicable to estimate the required

sample size was to review prior research studies as a guide (Anderson et al. 2017). In their

research study of the relationship between corporate governance and financial performance,

Vintilă et al. (2015) collected data from 51 companies listed in NASDAQ and the Dow Jones

Index. Financial performance (the dependent or criterion variable) was proxied through ROA

and ROE, and the independent or predictor variables representing the components of corporate

governance included four characteristics of the board of directors. A sample size of 51 banks was

therefore assumed to be large enough for the current research study because it involved the

analysis of the same two measures of financial performance and the same four measures of

corporate governance that were used by Vintila et al. (2015).

55
 The second applicable method was the 10-times rule, which assumes that the minimum

number of observations required to construct a multivariate model must be greater than 10 times

the number of independent variables (Hair et al., 2010). Therefore, with four independent

variables, the minimum number of banks observed in this study should be at least 40.

Procedures

This section includes a description of the procedures for participant selection, protection

of participants, data collection, and data analysis. First, the data came from the publicly available

SEC Edgar database. Second, the data, which contained the variables of non-executive members,

size of the board, tenure of CEO, CEO duality, ROA, and ROE, went into Microsoft Excel.

Third, data compilation and organization took place in Microsoft Excel. Finally, the data went

into SPSS for statistical analysis.

Participant Selection

Since the research study utilized secondary data, there were no participants. Following

Vintilă et al. (2015), the sample selection was the top 51 banks from 2007 to 2016. The sample

came from a complete list of the target population of 310. The data came from the NASDAQ

website and the SEC Edgar website. The bank data came from the NASDAQ website, which

listed them by financial sector type. The list of financial companies went from the NASDAQ

website to a Microsoft Excel spreadsheet. The search focused on the banking industry to obtain

the target population of the major banks.

Protection of Participants

Since there were no direct contacts with the participants, no consent was necessary from

the sample companies. Furthermore, although the data are public information, this study does not

56
identify any participants. Therefore, there was no risk to participants during the data-collection

and analysis stage.

Data Collection

This research study involved the collection and analysis of secondary data, defined as

data that have already been collected in the past using primary sources and are currently made

available in the form of a database for anyone to use in their own research. The data collection

process involved the collection of two criterion variables (return on assets and return on equity)

and the collection of four predictor variables (non-executive members, size of the board, CEO

tenure, and CEO duality) were collected from the following sources:

Return on Assets and Return on Equity

The data on the banks’ ROA and ROE came from the Edgar database on the SEC

website. A search identified the banks by their ticker symbols. The search filtering identified 10–

K filing types for the desired years. A search selected document references to financial data or

financial summaries, and this led to the extraction of relevant longitudinal/time-series data for

the financial years 2007 to 2016.

Non-Executive Members, Size of the Board, CEO Tenure, and CEO Duality

Data on the banks’ non-executive members, size of the board, CEO tenure, and CEO

duality came from the SEC Edgar database. A search identified the banks by their ticker

symbols. The search filtering identified 10–K filing types for the desired years. A search selected

document references to directors, executive officers, and corporate governance, and this led to

the extraction of the relevant/longitudinal data for the financial years 2007 to 2016.

57
 The secondary data were first aggregated and stored in a Microsoft Excel worksheet, then

subsequently imported into the data editor of IBM SPSS v. 24.0 to conduct the multivariate data

analysis.

Data Analysis

The choice of the most appropriate method of multivariate data analysis was considered.

MLR was initially believed to be an appropriate method to address the research questions and to

test the associated hypotheses. A review of the methodological literature was conducted to

determine if MLR was applicable. MLR is an old-fashioned first-generation modeling method,

developed by Karl Pearson in 1908 (Mertler & Vanatta, 2016). In the 21st century, MLR has

been superseded by a family of second-generation linear models, so called because they all

assume linear relationships between the criterion variables and the predictor variables (Alavifar

et al., 2012; Christensen, 2002; Fox, 2015; Galecki & Burzykoski, 2013) Linear models include

mixed models, which involve the analysis of both fixed effects and random effects (Detry, 2016;

Twisk, 2019); and structural equation models (SEM), which involve the testing of the goodness

of fit of the data to a hypothetical model (Alavifar et al., 2013).

Assumptions of MLR

The possible MLR model, based on similar studies on the relationships between

corporate governance and financial performance (Mirchandani & Gupta, 2018; Ogege &

Boloupremo, 2014; Vintilă et al., 2015) was:

Financial Performance = ß0 + β1 BS + β2 BI + β3 CEOD + β4 CEOT ± ε

where: the financial performance of each bank (represented by ROA or ROE) is the criterion

variable predicted by the model; ß0 is a constant, equivalent to the predicted financial

performance when the four predictor variables (BS, BI, CEOD, and CEOT) are zero; BS is the
58
size of the board; BI is the number of non-executive members on the board; CEOD is the duality

of the CEO; CEOT is the tenure of the CEO; ß1 to ß4 are the partial regression coefficients

(computed by assuming that each predictor variable remains constant); and ε = residual error (the

differences between the predicted and the observed values of the criterion variable).

MLR assumes that replicate measures of only one criterion variable and two or more

predictor variables are collected at one time by independent random sampling (Mertler &

Vanatta, 2016). This type of sampling assumes that each member of the target population (i.e.,

all U.S. banks) has an equal probability of selection and that the replicate measurements of each

variable collected from each bank did not depend on, or correlate with, any other measurements

of the same variable collected from the same bank at the same time or at different times (Mills &

Gay, 2019). However, the sampling method used in this research study was neither independent

nor random. The 10 intercorrelated repeated measures of the two criterion variables (ROA and

ROE) and the four independent variables (non-executive members, size of the board, CEO

tenure, and CEO duality) were collected longitudinally along a time series for a period of 10

years (from 2007 and 2016). Moreover, the 51 U.S. banks were not selected by random sampling

from the entire target population of 310 U.S. banks.

MLR was not applicable to analyze the repeated measures collected from the 51 U.S.

banks for 10 years because the analysis of repeated measures requires more advanced

multivariate techniques (Mertler & Vanatta, 2016; Pituch & Stevens, 2016). The repeated

measures among the secondary data were not independent but were autocorrelated, meaning that

the values of ROA and ROE at one time depended on the values at a previous time and had

connections with the values collected at a future time. Autocorrelation is a very common

problem for researchers attempting to analyze longitudinal financial data (Smith, 2021).

59
 It would be possible to conduct MLR very crudely if the 10 repeated measures of ROA

and ROE collected at each bank every year for 10 years were pooled and the average values of

ROA and ROE across the time series were analyzed as if they were only two rather than 20

dependent variables. However, the pooling of replicate data collected over a time series is a

questionable practice, termed pseudoreplication (Freeberg & Lucas, 2009). Pseudoreplicated

data generate misleading results if analyzed by statistical methods that assume independent

random sampling because the variance in the original data is sacrificed when the data are pooled

(Hurlbert, 2009). The remedy for pseudoreplication is to use a statistical model that takes into

account both the random and the fixed effects that occur among the repeated measures collected

over a time series (Millar & Anderson, 2004). The advantage of GLMM is that it facilitates the

construction of a multiple regression model using longitudinal data that were not collected by

independent random sampling (Detry, 2016; Twisk, 2019).

Assumption of Random and Fixed Effects

A GLMM assumes both random and fixed effects. The assumed random or within-

subject effects are the features of the research design that would be different if the data collection

was repeated in the future, while the assumed fixed or between-subject effects are the features of

the research design that would remain the same in a repeat of the study (Twisk, 2019). The

random effects at the 51 U.S. banks selected for this research study were caused by time because

the repeated measures of ROA and ROE at each bank would not be the same again if the data

collection took place over a different 10-year time period. The fixed effects were the features of

corporate governance that could potentially be measured again in the same way at the same

banks in a repeat of the research, specifically the four predictor variables (non-executive

members, size of the board, CEO tenure, and CEO duality).

60
Normality Assumption

GLMM does not assume normality of the dependent variables so long as there are no

outliers and the sample size is large (Twisk, 2019). If the sample size is large, then the data

comply with the central limit theorem (CLT). According to the CLT, if replicate samples drawn

from a population are large enough (generally if N > 30) then the means of the replicate samples

will approximate normal distributions, and the overall sample mean and variance will

approximate the population mean and variance, even if the underlying distribution in the

population deviates from normality (Greener, 2020; McLeod, 2019). Moreover, according to the

CLT, so long as the sample size is large enough, the estimators of the regression coefficients in a

linear model are approximately normally distributed around their true population values, and

their confidence intervals are robust. A linear model is justified so long as the sample size is

large, even if the dependent variable violates the normality assumption (Li et al., 2012). For this

reason, researchers who analyze financial data commonly assume that the CLT applies to their

data (Ganti, 2021).

Outliers

Outliers represent abnormal or unusual cases outside the limits of normality that could

potentially compromise the statistical inferences due to inflating the standard errors of the

regression coefficients (Osborne & Overbay, 2004). Outliers were identified in SPSS using

Mahalanobis D2 statistics, which measure the distance of each measure from the multivariate

centroid (Statistics Solutions, 2020). The GLMM analysis took place with and without outliers

because some statisticians consider the removal of outliers prior to inferential statistical analysis

a questionable research practice (Bakker & Wicherts, 2014). Because regression analysis is

highly sensitive to the presence of outliers, it is a common practice for researchers to remove

61
outliers and compute coefficients, confidence intervals, and p-values for the remaining data as if

they were the original data. However, this approach is problematic because it may lead to invalid

inferences, and it threatens the external validity of the results, since the data excluding outliers

do not truly represent the entire population(s) from which the samples were drawn (Chen &

Bien, 2018).

Multicollinearity

Multicollinearity (i.e., strong correlations between the predictor variables) inflates the

standard errors of the regression coefficients and compromises the statistical inferences (Yoo et

al., 2014). Variance inflation factor (VIF) statistics were computed by SPSS to test the

assumption that the predictor variables were not multicollinear. Some researchers assume

multicollinearity does not occur if VIF < 5; however, the threshold value of VIF = 5 is a

conventional rule of thumb, which requires caution. In a weak model, where the regression

coefficients are close to zero, even a small amount of multicollinearity, indicated by VIF < 2.5,

may compromise the results (O’Brien, 2007).

Data Analysis Procedure

Prior to the data analysis, all the variables were transformed into z scores (i.e., the mean

values divided by the standard deviations) so that the values of the standardized partial

regression coefficients ranged from –1 through 0 to +1. The z scores for the repeated measures of

the six variables collected from the 51 U.S. banks each year for 10 years went into the SPSS

mixed model generalized linear procedure assuming correlated random effects (SPSS Inc, 2005).

The general linear mixed model with random intercepts to predict financial performance was

defined by:

FP (x, t) = α0 + β1 BS (x, t) + β2 BI (i, t) + β3 CEOD (x, t) + β4 CEOT (x, t) ± ε

62
where x = bank; t = time.

The partial regression coefficients (ß1 to ß4) were estimated using the maximum

likelihood method, with a maximum of 100 iterations. Bootstrapping using the Monte Carlo

algorithm, with 1,000 random samples drawn from the data with replacement, estimated the

mean, standard errors, and confidence intervals of the regression coefficients. The Monte Carlo

algorithm got its name because it shuffled the data like a pack of cards between each random

sample (Davison & Hinkley, 2006).

Validity

Content validity refers to the accuracy and trustworthiness of the measurements in

quantitative studies, meaning how close the observed measurements in the sample are to the true

data in the population (Heale & Twycross, 2015). The financial information contained in the

SEC Edgar database has good content validity because it was audited and verified by third

parties. Investors, banks, regulators, researchers, analysts, and the public rely on the accuracy of

this information. A calculation based on the population size and the sample size (Creative

Research Systems, 2016) was performed to estimate the validity of the data used in this research

study. Given that the target population consisted of 310 banks listed on the NASDAQ and

NYSE, a sample size of 51 banks would provide a confidence level of 95% and a confidence

interval or margin of error of 12.56%, assuming normally distributed data, with 50% of the banks

on either side of the confidence interval. This calculation predicts that, for 95% of the time, the

observed values of the variables in the sample are within ± 12.56% of the true values of the

variables in the population.

Reliability

63
 Reliability is a component of validity and refers to the consistency of the measurements

in quantitative studies (Heale & Twycross, 2015). The reliability of the data used in this research

study is confirmed because the online SEC Edgar database requires public companies, their

officers, and major investors to disclose reliable financial and other information to the public

(Gerdes, 2003). Moreover, the secondary data used in this research study are assumed to be

reliable because the data collection followed the design and methodology used in similar

previous studies (Manning, 2019; Vintilă et al., 2015).

Ethical Considerations

Research studies require ethical treatment of the participants in data collection and other

ethical procedures. Since the research data came from a secondary source that is available

publicly online, Capella University’s Institutional Review Board (IRB) did not require consent to

use the data. There was no information on the identity of the companies, and the data came from

SEC Form 10–K financial reports. As company names were not included, there were no ethical

concerns relating to participant companies. No human subjects participated in the study. As the

researcher does not work in the banking industry, there is no conflict of interest in this study. The

data were stored on a flash drive in a secured location.

Summary

This chapter has provided a detailed description of the methodology and research design

for the study. The research design was a quantitative non-experimental correlational design

utilizing regression analysis. Chapter 4 gives the results of the study. It includes a review of the

sampling, data, hypothesis testing, and findings. Chapter 5 is the final chapter of the study. It

includes a discussion of the results, with limitations and recommendations for further study. It

also gives personal insight and interpretation, along with the conclusion of the study.

64
 CHAPTER 4. RESULTS

Chapter 1 provided an overview of the research study, as well as the background of the

problem, the statement of the problem, the purpose and significance of the research study, the

research questions and hypotheses, definitions of terms, the research design, assumptions, and

limitations. Chapter 2 provided an overview of the theoretical framework and the review of

published literature, as well as the methods of searching, the theoretical orientation of the study,

and a review of scholarly, peer-reviewed articles on corporate governance and financial

performance. Chapter 3 considered the methodology and research design of the study, as well as

the data collection process and data analysis procedures.

Chapter 4 presents the results of the data collection and analysis in three sections: (a)

description of the sample, (b) hypothesis testing, to provide the evidence to accept or reject the

following hypotheses:

H10: The financial performance measured by ROA within the U.S. banking industry is

not related to any of the following independent variables: the number of non-executive members,

the size of the board, the tenure of the CEO, and CEO duality;

H1A: The financial performance measured by ROA within the U.S. banking industry is

related to at least one of the following independent variables: the number of non-executive

members, the size of the board, the tenure of the CEO, and CEO duality;

H20: The financial performance measured by ROE within the U.S. banking industry is

not related to any of the following independent variables: the number of non-executive members,

the size of the board, the tenure of the CEO, and CEO duality;

65
 H2A: The financial performance measured by ROE within the U.S. banking industry is

related to at least one of the following independent variables: the number of non-executive

members, the size of the board, the tenure of the CEO, and CEO duality;

and (c) a summary of statistical evidence to address the overarching research questions:

RQ1: To what extent is there a relationship between the number of non-executive

members, the size of the board, the tenure of the CEO, CEO duality, and the financial

performance measured by the ROA within the U.S. banking industry?

RQ2: To what extent is there a relationship between the number of non-executive

members, the size of the board, the tenure of the CEO, CEO duality, and the financial

performance measured by the ROE within the U.S. banking industry?

Description of the Sample

The target population was publicly traded listed U.S. banks on the NYSE and NASDAQ.

From the total population of N = 310, the sample for the study was n = 51 banks, following the

same sample selection process used by Vintilă et al. (2015). To meet the inclusion criteria, all the

banks had: (a) filed their SEC annual report form 10–K for the 10 fiscal years between 2007 and

2016, (b) published reports in the SEC Edgar database, and (c) listed on the NYSE or NASDAQ.

The secondary data were derived from a manual search of the SEC Edgar database using

the company name, symbol, or central index key. The data were not cross-sectional (i.e.,

collected at one time) but were longitudinal (i.e., collected at more than one time). The

longitudinal data consisted of repeated measures of the corporate financial performance and the

characteristics of the boards of directors and the CEOs of the 51 U.S. banks over a period 10

fiscal years, from 2007 to 2016. The total sample size for each variable was 51 banks x 10 years;

therefore, N = 510.

66
 The criterion variables were assumed to be normally distributed, underpinned by the

central limit theorem, because the total sample size was large (51 banks x 10 years = 510). The

approximately bell-shaped frequency distribution histograms of ROA (2007 to 2016) and ROE

(2007 to 2016) in Figure 1 provide visual confirmation of the normality of the criterion variables.

Figure 1

Normal Frequency Distributions of ROA and ROE (N = 51 Companies)

67
 Figures 2 to 7 illustrate the time series of the mean values ± 95% confidence intervals of

the repeated measures of the five variables measured at the continuous level for the 51 banks

each year from 2007 to 2016. Figure 2 shows that the mean ROA per year declined from 1.07 in

2007 to 0.14 in 2009 (probably reflecting the global financial crisis), then went up to 1.10 in

2016. Figure 3 shows that the mean ROE per year fluctuated from 10.90 in 2007 to 0.11 in 2009

(probably reflecting the global financial crisis), then went up to 10.34 in 2013. Figure 4 shows

that the mean board size per year fluctuated from 13.64 in 2007 to 12.88 in 2012, then went up to

13.13 in 2014. Figure 5 shows that the mean board independence per year fluctuated from 11.37

in 2007 to 10.86 in 2013, then went up to 11.18 in 2016. Figure 6 shows that the mean CEO

tenure per year fluctuated from 9.63 years in 2007 to 13.51 years in 2015, then went down to

12.53 years in 2016. CEO duality fluctuated from 37 banks per year in 2007 to 34 in 2008–2009,

then went up to 38 in 2014.

Figure 7 has a different format to Figures 2 to 6 because duality of the CEO was

dichotomous categorical variable, coded by 0 = no duality and 1 = duality; therefore, mean

values ± 95% CI were not applicable. The bar chart in Figure 7 shows that the frequency of

CEOs without duality fluctuated from 14 banks per year in 2007 up to a maximum of 17 in

2010–2019, then down to a minimum of 13 in 2014. The bar chart shows that the frequency of

CEOs with duality fluctuated from 37 banks per year in 2007 down to a minimum of 34 in 2010–

2011, then up to a maximum of 38 in 2014.

68
Figure 2

Time Series of Mean ROA ± 95% CI

Financial Performance: Return on Assets 1.25

1.06
1.06 1.10
1.07 0.97
1.00 0.90 0.97

0.75

0.50
0.35
0.25 0.16
0.14

0.00

-0.25

-0.50
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Figure 3

Time Series of Mean ROE ± 95% CI

15
Financial Performance: Return on Equity

10.90
10.34
10 9.37
9.11 8.85
8.84
7.72

5
3.32

1.15
0 0.11

-5
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

69
Figure 4

Time Series of Mean Board Size ± 95% CI

14.5

14.0

13.64
Board Size

13.5
13.37
13.26
13.13
13.08 12.96
13.0 12.94 12.98 12.98
12.88

12.5

12.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Figure 5

Time Series of Mean Numbers of Non-Executive Board Members ± 95% CI

12.0
Non-executive Board Members

11.5
11.37

11.20 11.18 11.10 11.18

11.06 10.94 10.98
11.0 11.00
10.86

10.5

10.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

70
Figure 6

Time Series of Mean Tenure of CEOs ± 95% CI

16

14 13.51
Tenure of CEO (Years)

12.96
12.63
12.09
11.55
12
10.76
10.55 10.55

9.58
10 9.63

6
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Figure 7

Time Series of Frequency of Duality and Non-Duality of CEOs

40 38
37 37 37
35 35 35 35
34 34
35
Duality of CEO (Frequency)

30

25

20
17 17
16 16 16 16
15 14 14 14
13

10

0
0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1 0 1
Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: 0 = No duality; 1 = Duality

71
 Hypothesis Testing

Testing of Assumptions

Outliers were identified among the sample data. Table 1 presents the results of a test for

the presence of multivariate outliers using Mahalanobis D2 statistics, which measure the distance

of each measure from the multivariate centroid (Osborne & Overbay, 2004). The D2 statistics

reflected the presence of seven multivariate outliers representing abnormal or unusual cases that

could potentially compromise the statistical inferences due to inflating the standard errors of the

regression coefficients (D2 = .20.83 to 33.17, p < .001).

Table 1

Test for Multivariate Outliers

Year Bank Mahalanobis D2 p

2007 12 20.83 < .001
2011 47 21.21 < .001
2013 25 21.22 < .001
2014 25 21.81 < .001
2015 25 21.81 < .001
2008 29 23.54 < .001
2007 29 33.17 < .001

Multicollinearity was checked to determine if strong correlations between the predictor

variables might compromise the results (Yoo et al., 2014). Table 2 shows that all the correlation

coefficients between the four predictor variables (Pearson’s r = -.883 to .026) were < .9, and

Table 3 shows that all the variance inflation factors (VIF = 1.09 to 4.58) were < 5. However,

because the models were weak, indicated by partial regression coefficients close to zero, even a

72
small amount of multicollinearity, indicated by VIF < 2.5, could potentially compromise the

results (O’Brien, 2007).

RQ1: Prediction of ROA

To what extent is there a relationship between the number of non-executive members,

the size of the board, the tenure of the CEO, and CEO duality and the financial performance

measured by the ROA within the U.S. banking industry? Tables 2 and 3 present the GLMM

statistics from SPSS using the full set of data (N = 51 banks x 10 years), including outliers to

provide the evidence to address RQ1: To what extent is there a relationship between the number

of non-executive members (BI), the size of the board (BS), the tenure of the CEO (CEOT), and

CEO duality (CEOD) and the financial performance measured by the ROA within the U.S.

banking industry? The estimated regression equation was ROA = ß1 BS + ß2 BI + ß3 CEOT + ß4

CEOD, where ß1, ß2, ß3 and ß4 are the standardized regression coefficients for BS, BI, CEOT,

and CEOD, respectively.

Table 2

Correlation Matrix for Predictors of ROA

Predictor BS BI CEOT CEOD

BS 1
BI -.883 1
CEOT -.300 .365 1
CEOD -.008 .026 -.249 1

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Table 3

GLMM to Predict ROA Including Outliers

Partial Regression 95% CI

Predictor df t p VIF
Coefficients Lower Upper
BI ß1 .118 -.072 .308 506 1.23 .221 4.83
BS ß2 -.083 -.267 .102 506 -.0.88 .378 4.56
CEOT ß3 .146* .049* .243 506 2.96 .003* 1.26
CEOD ß4 .026 -.064 .116 506 0.56 .575 1.09
Note: * 95% CI do not capture zero and p < .05. R2 = .020

The model in Table 3 shows that CEOT was a statistically significant predictor of ROA

at the conventional .05 level, where ß3 (506) = .146, p = .003; with 95% CI [.049, .243] not

capturing zero (i.e., the lower and upper limits were positive). The other three components of

corporate governance were not statistically significant predictors of ROA at the .05 level,

indicated by p > .05 and 95% CI capturing zero (i.e., the lower limit was negative, and the upper

limit was positive).

The GLMM analysis was then repeated excluding the outliers. Table 4 presents the

GLMM statistics fusing a smaller sample (N = 44 banks x 10 years) excluding the outliers. Table

4 shows that the model excluding outliers was very similar to the model in Table 3 including

outliers. CEOT was a statistically significant predictor of ROA at the .05 level, where ß3 (499) =

.146, p = .004; with 95% CI [.047, .246] not capturing zero. The two models predicted that, for at

least 95% of the time, the z score of the ROA at each bank increased, on average, by .146 units

for every year that the tenure of the CEO increased by 1 year. However, BI, BS, and CEOD were

not statistically significant predictors of ROA at the .05 level, indicated by p > .05 and 95% CI

74
capturing zero. The weakness of this model is that R2 = .020 reflected that only 2% of variance in

the ROA was explained by the variance in the four components of corporate governance.

Table 4

GLMM to Predict ROA Excluding Outliers

Partial Regression 95% CI

Predictor df T p
Coefficients Lower Upper
BI ß1 .132 -.072 .335 499 1.27 .204
BS ß2 -.099 -.300 .102 499 -.0.97 .333
CEOT ß3 .146* .047* .246 499 2.90 .004*
CEOD ß4 .025 -.067 .116 499 0.53 .598
Note: * 95% CI do not capture zero and p < .05. R2 = .020

The evidence based on the interpretation of the p-values and 95% CI of the partial

regression coefficients computed by the GLMM analysis indicated that H01 should be rejected,

and HA1 should be supported, because the financial performance measured by ROA within the

U.S. banking industry was related to at least one of the following independent variables: the

number of non-executive members, the size of the board, the tenure of the CEO, and CEO

duality (specifically the tenure of the CEO).

RQ2: Prediction of ROE

Table 5 presents the GLMM statistics from SPSS using the full set of data (N = 51 banks

x 10 years) to provide the evidence to address RQ2: To what extent is there a relationship

between the number of non-executive members (BI), the size of the board (BS), the tenure of the

CEO (CEOT), and CEO duality (CEOD) and the financial performance measured by the ROE

within the U.S. banking industry? The estimated regression equation was ROE = ß1 BS + ß2 BI

75
+ ß3 CEOT + ß4 CEOD, where ß1, ß2, ß3, and ß4 are the standardized regression coefficients

for BS, BI, CEOT, and CEOD, respectively. The matrix of correlation coefficients between the

predictors, the VIF statistics, and the outliers were exactly the same as those in Tables 1, 2, and

3. The model in Table 5 including outliers shows that CEOT was a statistically significant

predictor of ROE at the .05 level, where ß3 (506) = .108 p = .011, with 95% CI [.011, .205] not

capturing zero. Table 6 presents the GLMM statistics from SPSS using a smaller sample (N = 44

banks x 10 years) excluding the seven outliers.

Table 5

GLMM to Predict ROE Including Outliers

Partial Regression 95% CI

Predictor df t p
Coefficients Lower Upper
BI ß1 .016 -.175 .207 506 0.16 .870
BS ß2 .010 -.175 .196 506 0.11 .913
CEOT ß3 .108 .011* .205* 506 2.19 .029*
CEOD ß4 .023 -.068 .114 506 0.50 .615
Note: * 95% CI do not capture zero and p < .05. R2 = .013

Table 6

GLMM to Predict ROE Excluding Outliers

Partial Regression 95% CI

Predictor df T p
Coefficients Lower Upper
BI ß1 .029 -.175 .236 499 0.28 .779
BS ß2 -.009 -.211 .193 499 -.0.09 .927
CEOT ß3 .108 .008 .208 499 2.12 .034*
CEOD ß4 .023 -0.69 .114 499 0.49 .623
Note: * 95% CI do not capture zero and p < .05. R2 = .013

76
 The model in Table 6 excluding outliers is very similar to the model in Table 5 including

outliers. Table 6 also shows that CEOT was a statistically significant predictor of ROE at the.05

level, where ß3 (499) = .108 p = .034; with 95% CI [.008 .208] not capturing zero (i.e., the lower

and upper limits were positive). The two models predicted that, for at least 95% of the time, the z

score of the ROE at each bank increased, on average, by .108 units for every year that the tenure

of the CEO increased by 1 year. However, BI, BS, and CEOD were not statistically significant

predictors of ROE at the .05 level, indicated by p > .05 and 95% CI capturing zero (i.e., the

lower limit was negative, and the upper limit was positive). R2 = .013 reflected that only 1.3% of

variance in the ROE was explained by the variance in corporate governance.

The evidence based on the interpretation of the p-values and 95% CI of the partial

regression coefficients computed by the GLMM analysis indicated that H02 should be rejected,

and HA2 should be supported, because the financial performance measured by ROE within the

U.S. banking industry was related to at least one of the following independent variables: the

number of non-executive members, the size of the board, the tenure of the CEO, and CEO

duality (specifically the tenure of the CEO).

Summary

The results provide sufficient statistical evidence to address the two overarching research

questions—RQ1: To what extent is there a relationship between the number of non-executive

members, the size of the board, the tenure of the CEO, and CEO duality and the financial

performance measured by the ROA within the U.S. banking industry? and RQ2: To what extent

is there a relationship between the number of non-executive members, the size of the board, the

tenure of the CEO, and CEO duality and the financial performance measured by the ROE within

the U.S. banking industry?

77
 The answers to the research questions came from the analysis of a set of longitudinal data

consisting of repeated measures of the corporate financial performance and the characteristics of

the boards of directors and the CEOs of 51 U.S. banks listed on the NYSE and NASDAQ over a

period 10 fiscal years, from 2007 to 2016 (N = 510). The application of the CLT meant that tests

for the normality of the repeated measures collected from each bank were not applicable. The

descriptive statistics (mean values for the 51 banks ± 95% CI) reflected the temporal fluctuations

in the values of two dependent variables (ROA and ROE) and four predictor variables (board

size, non-executive members, tenure of CEO, and duality of CEO) over the 10-year period. The

aim was to use MLR analysis to examine the relationship between corporate governance and

financial performance; however, GLMM was more appropriate due to potential assumption

violations for the multiple regression. The GLMM model statistics with and without outliers

revealed that the tenure of the CEO was the only statistically significant predictor of the financial

performance of the banks. For at least 95% of the time, the z score of the ROA at each bank

increased, on average, by .146 units for every year that the tenure of the CEO increased by 1

year. However corporate governance only explained 2% of the variance in the ROA, implying

that other factors that were not in the models explained 98% of the variance in the ROA. For at

least 95% of the time, the z score of the ROE at each bank increased, on average, by .108 units

for every year that the tenure of the CEO increased by 1 year. However, corporate governance

only explained 1.3% of the variance in the ROA.

78
 CHAPTER 5. DISCUSSION, IMPLICATIONS, RECOMMENDATIONS

Chapter 5 presents a discussion of the answers to the research questions in the context of

the literature reviewed in Chapter 2, considers the limitations of the results, and makes

recommendations for future research. Previous analyses to explore the relationships between the

components of corporate governance and financial performance have had inconclusive outcomes

(Tshipa et al., 2018; Vintilă et al., 2015; Wicaksono et al., 2019). Their inconclusive results

provided the rationale for further research on the relationships between corporate governance and

financial performance in U.S. banks listed on the NYSE and NASDAQ.

Summary of the Results

The purpose of this quantitative non-experimental research study was to analyze the

relationship between corporate governance and financial performance for U.S. publicly held

companies in the banking industry listed on the NYSE and NASDAQ. The goal of the study was

to extend the research of Vintilă et al. (2015) on corporate governance in the U.S. banking

industry. Corporate governance is defined by board size, board independence, CEO tenure, CEO

duality, and financial performance measured by ROA and ROE. These four corporate

governance components were selected specifically to provide a better understanding of their

positive or negative associations with financial performance within the banking industry.

The statistical analysis in Chapter 4 using GLMMs indicated that the results were

inconclusive. The vast majority (98% or more) of the variance in financial performance within

the U.S. banking industry was not explainable by analyzing the variance in the size of the board,

the number of non-executive members, the tenure of the CEO, or the CEO duality. The only

statistically significant predictor was the tenure of the CEO tenure for both ROA and ROE.

79
 Discussion of the Results

The evidence based on the results of hypothesis tests was that H01 and H02 should be

rejected, whilst HA1 and HA2 should be supported, because the financial performance measured

by ROA and ROE within the U.S. banking industry was related to at least one of the following

independent variables: the number of non-executive members, the size of the board, the tenure of

the CEO, and CEO duality (specifically the tenure of the CEO). The findings of this study are

not consistent with the findings of previous studies using similar methods to examine the

statistical relationships between the components of corporate structure and financial

performance. A comparison of the findings of this research study with previous studies revealed

many inconsistencies. Previous studies have generated contradictory results, for example, that

financial performance is positively or negatively correlated with board independence (Al-Najjar,

2014; Bhagat & Bolton, 2008; Erkens et al., 2012; Guest, 2008), the size of the board (Adusei,

2011; Chang & Dutta, 2012; Guest, 2008; Haniffa & Hudaib, 2006), the share of women on the

board (Vintila et al., 2014; Fidanoski et al. 2014), the age of the CEO (Berger et al., 2012;

Bhagat & Bolton, 2008), CEO tenure (Boone et al., 2007; Dikolli et al., 2011; Horstmeyer,

2011), and CEO stock possessions (Boone et al., 2007).

All other researchers have used similar hypothesis significance tests based on the

interpretation of statistical significance using p-values to interpret statistical models based on the

analysis of quantitative data using correlation and/or regression analysis. However, the reasons

for the discrepancies between this and other studies may be explained by the official guidelines

of the American Statistical Association, which assert that the results of hypothesis significance

tests are inconsistent and unreliable (Amrhein et al., 2019; Hurlbert et al., 2019; Wasserstein &

Lazar, 2016; Wasserstein et al., 2019).

80
 For example, Vintila et al. (2015) used a similar statistical model to that used in the

current study (i.e., mixed model with random and fixed effects) to test 10 hypotheses predicting

that positive or negative correlations exist between the financial performance of 51 companies

and (1) the number of non-executive members, (2) the size of the board, (3) the share of women

on the board, (4) the age of the CEO, (5) the tenure of the CEO, (6) the percentage of shares

owned by the CEO, (7) the share of institutional owners on the board, (8) the duality of the CEO,

(9) the remuneration of the CEO, and (10) the presence of a risk committee. If a t-test statistic for

a regression coefficient was statistically significant at p < .05, then Ventila et al. (2015)

concluded that the declaration of statistical significance reflected the meaningful effects of a

component of corporate structure on financial performance, specifically (1) a negative

correlation with board independence, (2) positive and negative correlations with the size of the

board, (3) a positive correlation with the share of women on the board, and (4) a positive

correlation with the tenure of the CEO. However, these conclusions may be misleading because

researchers in the 21st century are implored not to interpret inferential test statistics

dichotomously, depending upon whether or not the p-value is less than or greater than an

arbitrary threshold value (Amrhein et al., 2019; Hurlbert et al., 2019; Wasserstein & Lazar, 2016;

Wasserstein et al., 2019).

Following the guidelines of the American Statistical Association, this discussion focuses

on the need to evaluate the substantive or practical significance, as opposed to the statistical

significance, of the results. The effect sizes and not p-values must be interpreted to indicate

practical significance because it is essential to determine the extent to which the results are

useful in the real world (Kirk, 1996; Ellis, 2010; Ferguson, 2016). The coefficient of

determination (R2), which indicates the proportions of the variance in the dependent variable

81
explained by the predictors, was the most important statistic because it reflected the strength

effect of the components of corporate governance on financial performance. A widely used

interpretation, supported by the American Psychological Association, is that R2 < .04 represents

a negligible effect; R2 = .04 is the minimum effect size to indicate practical significance; R2 = .25

is a moderate effect size whilst R2 = .64 reflects a strong effect (Ferguson, 2016). The estimated

effects of the components of corporate governance on financial performance in the current

research study (indicated by R2 ≤ .02) implied that that the two models constructed to predict

ROA and ROE using corporate governance components may have negligible practical

applications in the real world. In contrast, Vintila et al. (2015) found a larger proportion of the

variance in financial performance (more than 30%) was explained by corporate governance.

The 95% confidence intervals of the regression coefficients for each predictor variable

provided more useful evidence to validate a statistical model than p-values (Kock, 2015; Pandis,

2013). Because the 95% CI of the regression coefficients did not capture zero, the tenure of the

CEOs had the strongest effect on corporate financial performance. Because the 95% CI of the

other three predictor variables captured zero, they had weaker effects on corporate financial

performance. However, just because the 95% CI captured zero, this did not imply that these three

predictors were not meaningful because there were other interval values on either side of zero

that contributed to a small proportion of the variance in the dependent variable.

This study revealed inconclusive findings because the very small effect sizes (R2)

indicated that the vast majority (98% or more) of the variance in financial performance within

the U.S. banking industry is not explainable by analyzing the variance in the size of the board,

the non-executive members, the tenure of the CEO, and CEO duality. Many other components of

corporate governance, and many other external factors that were not in the statistical analysis

82
(e.g., the effects of the global financial crisis from 2008 to 2009), may have explained the

fluctuations in the financial performance of the 51 U.S. banks between 2007 and 2016.

The analyses indicated some inconsistencies regarding the corporate governance

components and company’s financial performance. The mean ROA per year declined from 1.07

in 2007 to 0.14 in 2009 (probably reflecting the global financial crisis), then rose to 1.10 in 2016.

The mean ROE per year fluctuated from 10.90 in 2007 to 0.11 in 2009 (probably reflecting the

global financial crisis), then to 10.34 in 2013. One potential explanation for the inconsistency in

data on ROA and ROE was the 2008 global financial crisis. However, without additional

research, it was impossible to determine the cause of the inconsistency and the inconclusive

results of the research study.

Conclusions Based on the Results

The conclusions of this study were not consistent with Vintilă et al.’s (2015) conclusions,

because they found a negative correlation between CEO tenure and financial performance. This

study found a positive association between CEO tenure and financial performance. The tenure of

the CEO was a statistically significant predictor of ROA and ROE. The two models predicted

that, for at least 95% of the time, the z-score for ROE at each bank increased, on average, by

.108 units for every year that the tenure of the CEO increased by 1 year. However, board

independence, board size, and CEO duality were not statistically significant predictors of ROA

and ROE, and 98% of the variance in the ROA and ROE was due to unexplained factors that

were not included in the models. The overall answer to the research questions is that only a very

small proportion of the variance in financial performance (2% or less) within the U.S. banking

industry was explainable by analyzing the variance in the size of the board, the non-executive

members, the tenure of the CEO, and CEO duality.

83
 Limitations

In addition to the limitations associated with the use of obsolete statistical methods that

have been heavily criticized in the literature (i.e., hypothesis testing with p-values), the main

limitation of this research study was that the proposed statistical model was not well specified

prior to the collection of the data. If a predictive model is well specified (i.e., the predictors are

specifically chosen because they are expected to be strongly correlated with the criterion

variable) then it is expected that a high proportion of the variance in the criterion variable will be

explained by the predictors. Predictor variables should ideally be selected using expert

knowledge and theoretical, rather than statistical, considerations (i.e., not by using p < .05);

however, if expert knowledge is lacking and the theoretical framework is inappropriate, then the

model will inevitably be poorly specified (Heinze et al., 2018).

Implications for Practice

This study examined the assumptions of the agency theory by exploring the relationship

between the corporate governance and financial performance of companies in the banking

industry. Another goal of the research study was to extend previous research by determining

whether Vintilă et al.’s (2015) findings could extend from the technology industry to the banking

industry. Agency theory is a popular theoretical framework among scholars conducting research

on corporate governance (Wessels et al., 2016; Wicaksono et al., 2019; Zattoni et al., 2020). The

aim of corporate governance is to create guidelines and control for management on behalf of the

shareholders and to maximize wealth while reducing agency cost (L’Huillier, 2014). The main

theoretical implication of this research study is that agency theory does not appear to be relevant

with respect to corporate governance in U.S. banks. This research study did not provide any

evidence to confirm that the basis of agency theory is that conflicts may occur when principals

84
hire agents to act on their behalf (Ahola et al., 2021). Nor did this study provide evidence to

confirm that corporate governance mechanisms may help to reduce conflicts between managers

and shareholders (Vintilă et al., 2015).

The findings of this research study were not consistent with previous research suggesting

that several other components of corporate governance (e.g., the number of non-executive

members, the size of the board, the share of women on the board, the age of the CEO, the

percentage of shares owned by the CEO, the share of institutional owners on the board, the

duality of the CEO, the remuneration of the CEO, and the presence of a risk committee) may

influence corporate performance (Bernstein et al., 2016; Park et al., 2018; Vintilă et al., 2015).

The main practical implication of the study is that only one the predictors of the financial

performance of U.S. banks were statistically significant, specifically, the tenure of the CEO. The

results of the study suggested that the components of corporate governance had very limited

impact on financial performance (indicated by R2 ≤ .02). Thus, the conclusions of this study may

have very limited practical applications in the real world.

It is unlikely that the findings of this study will help analysts to develop corporate

governance guidelines to analyze, forecast, and assess economic risks. However, if analysts

believe that financial performance is elevated in banks with a long tenure of the CEO, then they

may develop guidelines to optimize corporate structure in order to maximize financial

performance based on CEO tenure. Moreover, investors may apply information about CEO

tenure at the companies that they invest in to monitor their investments and make better financial

decisions.

85
 Recommendations for Further Research

Empirical statistical models involving the use of regression analysis and its derivatives

have consistently failed to demonstrate the extent to which the components of corporate

governance may explain or predict a substantial proportion of the temporal fluctuations in

corporate financial performance (Tshipa et al., 2018; Vintilă et al., 2015; Wicaksono et al.,

2019). Perhaps it is time for researchers attempting to elucidate the relationships between

corporate governance and financial performance to follow the recommendation of Syll (2012)

and to disregard senseless econometrics based on using regression analysis. Alternative methods

may be better for future research.

Corporate governance research has historically focused on economic-related theory and

perspectives and depended on quantitative methods underpinned by positivism. As a post-

positivist, the researcher believes that knowledge acquisition occurs objectively though the

collection, analysis, and interpretation of quantitative data, based on the systematic application of

scientific methods; however, the researcher also understands that quantitative methods are

flawed and that it is easy to draw misleading conclusions and erroneous generalizations by

means of inferential statistical analysis (Aliyu et al., 2014).

This study did not use the constructivist paradigm, which posits that people acquire

knowledge subjectively by interpreting the meanings that people give to their lived experiences

in a social context (Amineh & Asl, 2015). Nevertheless, qualitative research, underpinned by

constructivism, may address the weaknesses of quantitative research and generate new theory to

explain the relationships between corporate governance and financial performance. A qualitative

methodology would involve going into boardrooms and interviewing a purposive sample of

CEOs and boards of directors. A phenomenological approach, based on the lived experiences of

86
the interviewees, might be better for exploring how the many non-quantitative factors that

interviewees perceive may influence corporate governance behaviors and outcomes (Zattoni et

al., 2013).

Thematic analysis of interview transcripts may reveal more insight into the factors

affecting the influence of corporate governance on the performance of the U.S. banking industry

than the collection of quantitative data and the generation of empirical statistics models. For

example, a phenomenological approach might address the following questions better: How do

the governance structure and group dynamics of the CEO and board of directors relate to

decision-making concerning corporate financial performance? How do the transparency of

ownership, financial conditions, and business disclosures of the company relate to corporate

financial performance? How do the business practices, regulations, and procedures of companies

relate to corporate financial performance?

Conclusion

Chapter 5 has presented a discussion of the results of this quantitative non-experimental

study in the context of previous studies. The goal of the study was to examine the relationship

between the components of corporate governance and the financial performance of companies in

the U.S. banking industry. The findings contradicted the results of previous research on the

relationship between corporate governance and financial performance. The limitations of the

study were discussed, focusing on the problem that the statistical model was not well specified

prior to the collection of the data.

The inconclusive and contradictory findings of the current study, compared to the

findings of previous studies, may imply that these studies have very limited practical significance

and provide the rationale for further research on the relationships between corporate governance

87
and financial performance in U.S. banks listed on the NYSE and NASDAQ. Alternative future

research using qualitative methods involving the interviewing of board members is

recommended. Many questions still remain to be answered in order to understand the

components of corporate governance that influence the performance of the U.S. banking

industry.

88
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