An Assessment of the Relationship Between Corporate Governance and Profitability: A Case Study of a Commercial Bank in Namibia

Abstract

The study aims to bridge a research gap by examining the relationship between corporate governance and profitability of a major commercial bank in Namibia. A quantitative methodology with data from the bank's financial ratios for the years 2017–2021 as well as business characteristics and corporate governance processes was adopted. As proxies for company profitability, market-based metrics like Tobin's Q and accounting-based metrics like return on asset (ROA) were employed. Additional secondary data was gathered from the bank's publicly available financial records. SPSS version 26 was used in the study's quantitative correlational design data analysis. The study finds a significant positive correlation between the ROE and the net profit margin. In addition, there is a positive relationship between the ROE and board size as well as between board size and net profit margin. However, the findings indicate a negative correlation between the Board independence and net profit margin as well as between the board independence and ROE but a positive relationship between the board independence and board size. The study finds that the profitability of the bank is not significantly influenced by either board independence, board size or ROE. However, the board size negatively impacts profitability. Similarly, the ROE and board independence positively impacts profitability. The study concludes that ROE is significant when the profitability of the bank is analysed compared to the board size and board independence. This study reduces a literature gap in Namibia, a relatively small emerging market that is very poorly represented in the literature. It has implications to bank managers, directors, and policy makers in guiding companies’ sustainability.