Corporate Governance in the Banking Sector (Empirical Study on the Effect of Separating Chairman and Chief Executive Officer (CEO) Positions on Financial Performance)

Abstract

The subject of corporate governance has brought great attention to global business in developing and developed countries after a string collapses of high profile companies. The failure of Enron Corporation in 2001 for example shocked the investment community in it very core. Banking sector is a critical sector in any economy. A well-developed corporate governance system with clear authorities and responsibilities can contribute in advancing economic welfare. Good corporate governance enhance real investments. At the core of corporate governance lies the importance of transparency, monitoring, responsibility and accountability.

Egypt is one of the most important Arab countries. Now the Egyptian uprising has to bring into attention economic as well as political reform. The failure of the privatization program together with the lack of rules governing organizations and institutions stress the need for reform. Effective corporate governance practices are essential for achieving and maintaining public trust and confidence in the banking system.

The objective of this study is to investigate and explore the effect of separation the positions of CEO and Chairman on the financial performance of banks in Egypt. We believe that this research could be beneficial as it shed light on new, empirical knowledge on the effect of separation positions of Chief Executive Officer and Chairman on a developing country such as Egypt struggling to achieve high rates of economic growth by creating a well-developed legal, political and economic infrastructure. The empirical study on Egyptian commercial banks measures financial performance by return on assets (ROA) and return on equity (ROE) since both ratios summarize the final results of the bank performance.