Assessing Corporate Governance Practices on the Financial Performance of Banking Industry in Zambia

Sheillah Fungai; Sydney Chikalipah

doi:10.59413/ajocs/v7.i3.10

Authors

Sheillah Fungai Graduate School of Business , University of Zambia Author
Dr. Sydney Chikalipah Graduate School of Business , University of Zambia Author

DOI:

https://doi.org/10.59413/ajocs/v7.i3.10

Keywords:

Corporate Governance, Financial Performance, Board Independence, Panel Data Regression

Abstract

Corporate governance plays a critical role in enhancing financial stability, accountability, and performance sustainability within the banking industry. This study examined the relationship between corporate governance practices and financial performance in the Zambian banking industry using panel data from fifteen commercial banks over the period 2014 to 2024. The study focused on key governance mechanisms, including board independence, managerial experience, and audit committee characteristics, while controlling for board meeting frequency and firm size. Financial performance was measured using Return on Assets (ROA) and Return on Equity (ROE). The study adopted a quantitative research approach with an explanatory research design based on the positivist paradigm and employed panel data regression techniques, including Pooled Ordinary Least Squares, fixed effects, and random effects models. Model selection was guided by the Breusch–Pagan Lagrange multiplier test and the Hausman specification test. Diagnostic tests for heteroskedasticity, serial correlation, and cross-sectional dependence were conducted, and robust standard errors were applied to ensure reliable estimation results. The empirical findings revealed mixed effects of corporate governance mechanisms on financial performance in the Zambian banking industry. Board meeting frequency emerged as the only governance variable with a positive and statistically significant effect on operational profitability measured by ROA. This suggests that active board engagement strengthens oversight and improves decision-making efficiency in banks. In contrast, board independence, managerial experience, and audit committee membership did not show statistically significant effects on ROA in the robust model. Furthermore, none of the governance variables significantly influenced shareholder profitability measured by ROE, indicating that equity returns may be driven more by broader financial and macroeconomic conditions than by internal governance structures alone. The study concludes that governance effectiveness in the banking industry depends more on the quality of board processes than on structural compliance. The findings provide policy and managerial implications for strengthening governance practices to enhance financial stability and investor confidence in Zambia.

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