Degree Name

Doctor of Philosophy


School of Accounting and Finance


Following the large number of corporate collapses around the world and their profound impact on investors, most research on corporate governance has focused on the mature market situations of developed countries, such as the United States, the United Kingdom, Germany and Japan, investigating whether a control mechanism promotes accountability. Remarkably, there is a dearth of studies on corporate governance in developing countries, such as Bangladesh.

Although, there is no serious corporate scandal in Bangladesh to undermine investors' confidence, corporate governance issues have still been prevalent in Bangladesh for few reasons. For example, the existing corporate governance best practices are not comprehensive and adequate. There is no legislative guidelines for controlling share ownership, no legislative guidelines for the directors' duties even legislative guidelines for the appointment of independent directors. Therefore, the company directors are sometimes found to be involved in malpractice and the firm level poor corporate governance practices was identified. This study aims at examining the relationship between various corporate governance mechanisms (such as, ownership structure, board practices, compensation and capital structure) and firm performance. While doing so, this study explains the alternative corporate governance models around the world and attempts to frame a theoretical model of corporate governance in Bangladesh. It is revealed that, similar to corporations in Germany, Japan and East Asia, the corporate control mechanisms in Bangladesh are mostly insider oriented; such as ownership structure and in general, the board of directors. Some of the important external control mechanisms, such as market for corporate control or takeovers are largely absent in Bangladesh corporate sector. Due to the absence of a liquid capital market some other dominant control mechanisms, such as compensation in the form of stock options, debt covenant and effects of dividend policy in corporate monitoring are also absent in Bangladesh corporate sector. However, similar to corporate boards in Anglo-American countries, there is the representation of the outside independent directors on the corporate boards in Bangladesh.

Pursuant to the control mechanisms identified in this study, it is further investigated whether these control mechanisms influence the firm performance (promotes accountability) in Bangladesh. More specifically, by using 2-Stage Least Square (2SLS) regression analysis, this study investigated whether different control mechanisms, such as ownership structure, board practices, executive compensation and capital structure influence the firm economic performance in Bangladesh.

The empirical findings suggest that firms with majority ownership by insiders are over performing than any other ownership group. A significant positive relationship is found between the blockholding by directors and/or managers and firm performance. However, no significant relationship is found between the institutional ownership and firm performance and outsider ownership and firm performance. It is further revealed that the firm performance enhances within a certain level of insider ownership, implying that a certain level of insider ownership is good for the overall health of the company. These findings suggest that the effective owners' involvement in the firms may reduce the agency conflict and may enhance firm performance. The empirical findings of the relationship between board composition and firm performance suggests that the board composition in the form of proportion of outside independent directors can not influence the firm performance. The empirical finding of the relationship between CEO duality and firm performance suggests that the CEO duality does not influence the firm performance. The empirical findings of the relationship between the ownership structure, firm size and executive pay suggest that there is a significant positive relationship between ownership structure and executive pay; executive pay and firm size. However, there is no conclusive evidence of pay-performance sensitivity.

The significant relationship between executive pay and firm performance is found only under the Tobin's Q performance measure. The weak association between pay and performance suggests that executive compensation as a governance mechanism may not be suitable in the context of Bangladesh. This is probably due to the absence of a liquid capital market in Bangladesh. The empirical findings of the relationships between the capital structure and agency cost, and capital structure and firm performance suggest that capital structure can not reduce the agency cost. However, capital structure can influence the firm performance only under the market based performance measures. It implies that the lenders have very little role in firm governance in Bangladesh.

Although this study supports the number of earlier studies, it could not provide the conclusive evidence on some important issues. The differences in the results from earlier studies suggest that corporate governance problem in Bangladesh may not be similar to that of other countries. The diversity of this study with the earlier studies implies that the 'one size does not fit all' or one set of governance arrangements maynot be suitable for every country.

Based on both the theoretical discussions and empirical investigations, it is apparent that the corporate governance practices need to be improved in Bangladesh. Therefore, this study finally seeks to assist the regulatory body in framing and/or improving the corporate governance best practice/guidelines for Bangladeshi firms.



Unless otherwise indicated, the views expressed in this thesis are those of the author and do not necessarily represent the views of the University of Wollongong.