The role of board structure (board Size, board Independence and CEO duality) in firm performance is one of the fundamental issues in finance and economics literature on corporate governance. This study examines the impact of board structure on bank performance in India. The study uses board structure variables such as board size, board independence and CEO duality to test the relationship between board structure and bank performance using return on assets (ROA) and profit after tax (PAT) as performance variables. The study also examines the impact of board meetings and the number of financial experts on bank performance.
Based on a sample of 36 scheduled commercial banks in India during the period 2001-2014, we use the three models pooled panel, random effect model and fixed effect model to test the relationship between board structure and bank performance. Finally, we address the issue of endogeneity of bank board using generalised method of moments (GMM).
We find significant relationship between board size and bank performance when the board size is between 6 and 9. We also find positive and significant relationship between board independence and bank performance. Further, we find that the number of board meetings and presence of large number of financial experts are important for bank performance. However, we find no significant improvement in bank performance when the role of CEO and Chairman is separated.
The findings of the study have important policy implications in the area of corporate governance. The study is relevant in the context of ongoing restructuring of boards of banks in India. The study suggests that board size and composition of independent directors need to be rationalised. Finally, splitting the role of CEO and Chairman has limited influence on bank performance.