Board Committees and Financial Performance: Evidence from select Indian Banks

The purpose of this study is to explore the relationship between board committees as a special yet largely under-researched component of board structures, and financial performance of select Indian commercial banks. The study has been conducted on 36 banks operational in India in the time period of ten years (2007-2016) through an unbalanced panel employing fixed effects model amidst statistical evidence of its suitability. Financial performance of banks is found to share a statistically significant relationship with the number of committees of the board. This relationship is confirmed for its non-linear effect on both Return on Assets (ROA) and Return on Equity (ROE). This relationship establishes the pertinent role of board committee structures in shaping the financial performance of struggling Indian banks. The present research assumes practical significance in transitional times in which the banking industry of emerging economies are striving to find their foothold. Board committees emerge as an important component of corporate governance prodding regulators for steering necessary reforms through this component. Board committee as the primary variable in context of banking entities, which generally are excluded from governance studies, lends originality to the study. The results of this research draw renewed attention of insiders and outsiders of banks and call for policy decisions to incorporate board committees both as a measure to strengthen governance and improve profitability.