The Effect of Corporate Governance Practice on Firms’ Profitability in the Manufacturing Industry of Bangladesh

Abstract

Purpose: The main purpose of this study is to find the extent of corporate governance practice impacting profitability of the manufacturing companies in Bangladesh. Methodology: To investigate the impact, 103 firm-years have been used as a sample from the manufacturing sector of Bangladesh. Besides, Pooled OLS robust regression models have been used here to analyze. Findings: The regression result shows that there is a significant positive relationship between female directors in the board and ROE of the company, and a significant negative relationship between family dominance in the board and ROE of the company. But the result does not show any significant relationship between corporate governance practices and ROA. However, there is a significant positive relationship between female directors in a board and EPS, and audit firm quality and EPS of the firm. There is also a significant negative relationship between family dominance in the board and EPS. Limitations: The study is limited to some fixed industry data and time period and the results can vary if time period and industries are changed. Practical Implications: In the paper, empirical evidence suggests that corporate governance mechanisms can be used as effective tools to improve performance of the firms, and it can help the policy makers and regulators to set regulations in the developing countries like Bangladesh. Originality/Value: The uniqueness of the paper is the industry setting, as most of the researches use the banking sector, a very highly regularized sector, to show the effect. The study has used information from manufacturing industry and it also has used more variables than the variables used in previous studies to define corporate governance.