Background of the study

The financial crises that are happening in many prominent institutions around the world have
resulted in the demand for necessary regulations, standards, and ethical and professional
principles to achieve trust and reliability in the financial data that investors require. This in turn
has led to the emergence of the concept of corporate governance.
Naser (2020) defined corporate governance as "policies, processes, and a set of measures put in
place to ensure that the company's managers work toward the fulfillment of the organization's
vision and objective while maximizing shareholder value in an ethical manner." Corporate
governance, according to Sani (2019), is about leading and regulating a company and its
structures, as well as monitoring managerial effectiveness. Corporate governance, according to
(Munir, Khan, Usman, & Khuram, 2019), is a method by which corporations are systematically
managed and controlled. According to (Rajesh, 2017), the goal of corporate governance is to
establish a trustworthy and transparent connection between the corporation and its stakeholders.
Corporate governance refers to the interactions of a company's executives, board of directors,
shareholders, and other stakeholders. It establishes the structure through which the company's
goals are created, as well as the tools for accomplishing those goals and monitoring performance
(OECD, 2015). Bezawada (2020) came to the conclusion that a good CG provides for good
financial performance and a fair return for all company shareholders.

CGV is important because it aids in the achievement of organizational goals, risk management,
and formal risk avoidance decision-making (Ida Bagus et al., 2019). In addition, CGV strives to
balance the interests of all stakeholders, including shareholders, directors, employees,
consumers, suppliers, lenders, governments, and communities. In terms of economic, legal,
social, cultural, and property components, CGV differs from every country and every company.
Accountability, openness, and credibility are aspects of corporate governance, as well as the
ability to build effective information channels can be given in a way that promotes good
corporate performance (Gadi, Ebelechukwu & Yakubu, 2015).

All companies, especially commercial non-profits and corporations, are concerned about the
need for strong corporate governance (Melkamu, 2016). Regardless of industry or company size,
good corporate governance is crucial for any firm or institution (Mwangi, Obonyo & Cheruyoit,
2015). Corporate governance in banking provides the basis for attracting national and
international investors who want to know that their money is safe and well managed (Fanta,
Kemai and Waka, 2013; Mohammed and Farouk, 2014; Abdulazeez, Ndibe and Mercy, 2016 ).
Furthermore, to maintain effective banking in all current economic conditions, appropriate
corporate governance structures and practices are required in developing, transition, and
developed countries (M. Karim and Kerry E., 2013). Poor corporate governance was cited by
Barth et al., 2007 as the main reason for many financial problems; Nam and Lum, 2006, but the
global financial crisis of 2007 demonstrated that effective corporate governance cannot be
subverted for monetary fundamentals (De Larosire et al., 2009; Kirkpatrick, 2009). In this
regard, Alobaidi et al. (2017) showed that financial crises have necessitated the development of
basic policies, measures, and moral and professional standards in a variety of organizations
around the world to achieve trust and consistent quality in the fiscal information needed by
speculators, which started the spark Further development of the corporate governance concept.
Banking supervision and a variety of banking laws and regulations are mandated by the
government due to the unique characteristics of banks. How successfully a bank service serves
the best interests of shareholders while complying with regulatory standards is determined by the
interaction of these aspects. As a result, banks' corporate governance policies are important to
both shareholders and regulators in the bank's performance and day-to-day operations
(Asnakech, 2013).

Ethiopia's financial system is characterized by an ineffective risk management system. insider

ownership (as opposed to outsiders running the company); a board full of challenges; sound risk
management systems; and a competitive environment between banks are all governance methods
that help banks increase their financial value (Asnakech. 2013). Board size, gender diversity on
the board, the size of the audit committee, and the educational qualifications, experience, and
other factors of the board are examples of corporate governance practices (Yenesew, 2012).
Many scholars have examined the impact of corporate governance practices on banks' financial
performance using a variety of explanatory variables (Yenesew, 2012; Peters and Bagshaw,
2014; Aulia, 2013; Olubukunola Ranti, 2011; Ashenafi, et al., 2013; Bonsa, 2015).
According to (Yenesew, 2012), efficient corporate governance practice improves financial
performance depending on the financial performance measure used, hence agency theory is
appropriate. The relationship between corporate governance practices and financial performance
is explained. According to (Peter and Bagshaw 2014), a company's financial performance is
unrelated to its corporate governance quotient. Banks' financial performance improves due to
good corporate governance standards (Ashenafi, et.al., 2013). Bank performance is influenced by
excellent corporate governance practices and policies, and a sound financial system depends on
viable and adequately funded banks (Yenesew, 2012).

The main objective of this research is to see how corporate governance affects the financial
performance of the Abay Bank Hawassa district office. This underlines the importance of legal
regulations and the effectiveness of their implementation.

Statement of the problem

A weak CG structure, especially in developing countries, poses a serious challenge to CG

practice and compliance. (Al-ahdal et al., 2020). Abobakri (2017) points out that bank
governance has only recently become the subject of empirical studies, especially after the onset
of the recent financial crisis. The banking industry worldwide has seen many reforms over time,
ranging in size, audit committee, board composition, block ownership, operations, and processes.
With the concomitant concentration these changes bring to the banking industry, there is a need
to respond to the challenges banks face, particularly with regard to strengthening their corporate
governance environment. Poor corporate governance can contribute to bank failures, with
significant public costs and consequences (Rahman and Islam 2018; Hajer and Anis 2016;
Onofrei, Firtescu and Terinte, 2018). Good corporate governance promotes efficient oversight of
company assets, effective risk management, and greater transparency of financial activities help
to achieve and maintain public confidence in the financial system. In contrast, poor corporate
governance can contribute to financial failures, which in turn could trigger a run on financial
institutions or a liquidity crunch. Due to the non-transparency of private banks and strong state
regulation, corporate governance in the financial sector works differently. Private financial
sectors are generally more opaque than non-financial institutions and there is evidence that
information asymmetries are larger than in other sectors (Asnakech, 2013).
Private commercial banks are the subject of corporate governance studies for two reasons; First,
while information asymmetries exist across all sectors, they are greater for private financial
institutions as they are generally more opaque and owned by a range of shareholders compared
to government financial institutions. (Yenesev, 2012; Levine, 2003).
Previous research has had a significant impact on corporate governance procedures and financial
performance, although it has tended to focus on wealthy countries. However, developing
countries, especially Ethiopia, have received minimal attention in various literature on the
subject, such as Minga (2008)). Despite the fact that numerous studies have been conducted in
large companies operating within well-organized corporate governance mechanisms in
developed economies, our country of Ethiopia has remained ignorant in this discipline, especially
in the financial institution's sector, which is still in its infancy. In the case of Abay Bank Share
Company, this study attempts to fill this gap by assessing the impact of corporate governance on
the financial performance of a private commercial bank.

Objective of the study

General objective

The main objective of this study is to assess the impact of corporate governance on the financial
performance of Abay Bank share company.

Specific Objective

In particular, this study aims to achieve the following specific objectives:

1. Examine the relationship between board size and financial performance.

2. Exploring the relationship between a board member's educational qualification and
financial performance.
3. To Analyze of the impact of industry experience and financial performance of
board members
4. To determine the impact of the size of the board members' audit committee on
financial performance.
 5. To Analyze the relationship between board member gender diversity and financial
performance.

Research Hypothesis

Ho1. Board size has a clearly negative relationship to financial performance.

Ho2. Educational qualifications of board members are significantly positively related to financial
performance.

Ho3. Board members' leadership experience has a significantly positive relationship to financial
performance.

Ho4. Gender diversity on the board is significantly positively related to financial performance.

Ho5. The size of the audit committee on a board of directors is significantly negatively related to
financial performance.

Significance of study

The study has the following theoretical and practical implications:

 First, this study could help us to better understand corporate governance in developing
countries in terms of agency theory, especially in Ethiopian industrial and service companies,
and determine if there are areas for improvement that need to be addressed could become.
 These studies contribute to the ongoing governance literature in developing countries, and
also help to alleviate the lack of corporate governance studies in developing countries such as
Ethiopia in their knowledge of the idea of corporate governance.
 Corporate governance decision makers at Abay Bank can also benefit from the study.

 Finally, the study results will provide an insight into the current state of corporate
governance in Ethiopia, which will be of interest to local and international investors,
managers and academic researchers interested in the topic.
 Scope of the study

The scope of this investigation is limited to the Hawassa District Office of Abay Bank Share
Company. The study period is four years (2009-2013 E.C.), with the chosen period covering the
last years of operation. In addition, the corporate governance factors examined are limited to
board size, gender diversity on the board, level of board member education, board member
experience in the financial sector, and size of the audit committee.

Organization of the study

The research is organized into five chapters, as follows: The first chapter has an introductory
section that includes the study's history, the problem statement, the study's objectives, the
study's scope, meaning, and organization. Theoretical, empirical, gap, and conceptual
framework are covered in the second chapter. The research methodology is discussed in
Chapter 3, which covers the study area, research design, data source, sampling process,
study population, sample size, model variables, hypothesis, and data analysis. The study's
analysis and comments are presented in Chapter 4. Finally, in Chapter 5, the researcher's
opinions and recommendations are offered following the analysis.