Board Independence, Risk Management, and Financial Performance: The Post COVID Bangladesh Banking Sector Evidence

Abstract

The function of non- executive, independent directors in determining the performance of the firm has been a debatable topic in the existing literature on emerging markets. In the current study, we examine the interrelation between board independence, risk-management practices and financial performance of a sample population of 36 banks listed publicly in the Dhaka Stock Exchange (DSE) in a Post COVID era. Despite the expectations of the agency theory, according to which the independent oversight of firms should improve the value of the firm, however, our results show that the degree of board independence is statistically non-significantly correlated with the risk-management indicators, as well as the financial performance measures. These results suggest that in the Bangladeshi environment, non-executive directors are often simply a paper tiger, meeting regulatory formalities, but with no ability to perform any substantive oversight. The findings of our study show the importance of structural changes in the selection of directors in order to address the impact of undiluted ownership and political power.