THE EFFECT OF CORPORATE GOVERNANCE PRACTICES ON FIRM

PERFORMANCE IN THE PHILIPPINE BANKING SECTOR

_________________________________
A Thesis Proposal
Presented to the
Faculty of the Department of Accountancy
School of Business and Economics
University of San Carlos
Cebu City, Philippines
_______________________________
In Partial Fulfillment
of the Requirements for the degree
Bachelor of Science in Accountancy
____________________________
By
Amores, Vianca Pearl I.,
Bermudo, Jessa C.,
Tan, Shannen Keisha L.

APPROVAL SHEET
This thesis entitled THE EFFECT OF CORPORATE GOVERNANCE PRACTICES ON
FIRM PERFORMANCE IN THE PHILIPPINE BANKING SECTOR prepared and

submitted by VIANCA PEARL AMORES, JESSA BERMUDO, and SHANNEN TAN in

partial fulfilment of the requirement for the degree in BACHELOR OF SCIENCE IN
ACCOUNTANCY has been examined and is recommended for acceptance and
approval for ORAL EXAMINATION.
THESIS COMMITTEE

CHALLONER ALLEGO MATERO, DPA

Adviser
MRS. ELEONOR PACLIJAN
Member

DR. MARITES KHANSER

Member

MRS. MARIAN SIONZON

Member

PANEL OF EXAMINERS

ACKNOWLEDGEMENT
2

The researchers would like to acknowledge the following for helping us finish this
proporal:
To God, for giving us hope and listening to our prayers.
To Sir Matero, for the helpful recommendations and insights.
To our parents, for always believing in us.
To ours friends and loved ones, for their encouragement and inspiration to finish
this study.
Lastly, to the University of San Carlos, for allowing us to study within its hallowed
halls thereby giving them the best education that money could offer and a range of
experiences invaluable and unattainable in any other top tier university.

Research Executive Summary

Title
THE EFFECT OF CORPORATE GOVERNANCE PRACTICES ON FIRM
PERFORMANCE IN THE PHILIPPINE BANKING SECTOR
Keywords
Corporate Governance, Financial Performance, Philippines
Researchers Names
Amores, Vianca Pearl I.; Bermudo, Jessa C.; Tan, Shannen Keisha L.

Acknowledgements
The researchers would like to give their heartfelt gratitude to God for His eternal
guidance, to Sir Matero for his attention and guidance, to their various mentors for their
knowledge and time, to the panel members, Mrs. Eleanor Paclijan, Dr. Marites Khanser,
and Mrs. Marian Sionzon, for their insight and support, to their parents, for their love,
care and unrelenting support, and lastly, to the University of San Carlos for allowing
them to encounter this learning experience.

Introduction
The financial sector is principally responsible for mobilizing domestic savings and
converting these funds into productive investments. It intermediates claims between
savings and investors. Together with the state of confidence and long-term expectation,
the stability and performance of financial institutions such as banks, equity and bonds
markets, insurance companies, and other financial entities have an indirect but vital
bearing on investment and the growth of output and employment in the country.
(National Economic Development Authority, 2011)
This necessitated a study on the correlation of corporate governance and firm
performance in the financial sector of the Philippines.
Statement of the Problem
The study will determine the effect corporate governance practices on firm
performance of the publicly listed Philippine banks in order to propose indicators of
corporate governance. Specifically, the proponents will aim:
1) To present the profile of the selcted publicly listed Philippine banks in terms of
firm performance through its Return on Assets (ROA)
2) To determine their corporate governance practices;
3) To establish a relationship between the corporate governance practices, the firm
size and performance; and
4) To design a framework for indicators of corporate governance based on the
findings of the study.
Research methodology
Both the qualitative and quantitative approaches were used by the researchers. The two
main variables of this study were the corporate governance practices of the publiclylisted companies in the Philippines as quantified through the ICD ASEAN Corporate
Governance Scorecard which were treated as the independent variable and the firms
financial performance, measured by the ROA ratio, as the dependent variable. The
correlation between the two variables was analyzed through the linear regression model
and scatter-plot graphs using offline computer application software called Stata. Lastly,
the researchers formulated a framework indicator of profitability based on the findings
and analysis.
References
An extensive body of knowlsedge was exhausted by the researchers as a reference for
the data gathering and sound analysis performed. The researchers used the Annual
Corporate Governance Reports and Annual Reports published by the research subjects.
Also, other related literatures were consulted by the proponents for the supplemental
information and analysis of the data gathered.
2

Researchers names and contact details including e-mail or address

Member

Contact Number

E-mail Address

Amores, Vianca Pearl I.

09228554113

vianca_amores@yahoo.com

Bermudo, Jessa C.

09331380618

bermudo_jessa@yahoo.com.ph

Tan, Shannen Keisha L.

09228232581

shannen_tan2995@yahoo.com

TABLE OF CONTENTS

Cover Page i
Approval Sheet . ii
Acknowledgement .... iii
Research Executive Summary ..
iv
Table of Contents ......vii
Lists of Tables ... ix
List of Figures . ..xi

Chapter 1: Introduction
1
Background ...
1
Statement of the problem .
4
Scope and Limitation ........
4
Significance of the Study
6
Definition of Terms
8
Chapter 2: Theoretical Background ...
9
Review of Related Literature ..
9
Corporate Governance ...
9
4

Corporate Governance Practices ...

12
Measures of Financial Performance .
17
Financial Performance Correlation with ICD Scorecard Components

21
DuPont Analysis ..

23
Theoretical Framework .
24
Stewardship Theory ..
25
Agency Theory 25
Stakeholder Theory . 26
OECD Principles of Corporate Governance ...
26
Conceptual Framework
27
Chapter 3: Research Methodology ...
29
Research Design ...
30
Research Sample Selection ..
30
Data Collection . 31
Data Analysis 31
Corporate Governance Practices: ICD Scorecard
31
Financial Performance ..
33
5

Rationale of DuPont Analysis ..

34
Establishing Correlation ...
35
Data Presentation .
36
Chapter 4: Presentation, Analysis and Interpretation of Data
... 37
Corporate Governance Practices ...
37
Company Financial Performance ..
58
Regression of ROE to Each Major Part of the Scorecard
. 59
Regression of ROE to Rights of Shareholders (Part A)
.... 60
Regression of ROE to Equitable Treatment of Shareholders (Part B)
.. 61
Regression of ROE to The Role of Stakeholders (Part C)
.... 63
Regression of ROE to Disclosure and Transparency (Part D)
.. 65
Regression of ROE to Responsibilities of the Board (Part E)
.. 67
Regression of ROE to Total Score ....
69
Framework Indicator for Profitability ...
70
Chapter 5: Summary of Findings, Conclusion and Recommendation
73

Summary of Findings ..
73
Conclusion ...
75
Recommendations
77
Bibliography .....................................................................................................................
.......... 80
Appendices ..
85
Curriculum Vitae ..
95

LIST OF TABLES

Table 1 Corporate Governance Scorecard Composition and Structure

. 32
Table 2 The Rights of Shareholders ..
38
Table 3 Equitable Treatment of Shareholders ...
41
Table 4 Role of Stakeholders
44
Table 5 Disclosure and Transparency
47
Table 6 Responsibilities of the Board
51
Table 7 DuPont Analysis of the Research Subjects
.. 58
Table 8 Regression of ROE to Rights of Shareholders (Part A)
85
Table 9 Regression of ROE to Equitable Treatment of Shareholders (Part B)
. 85
Table 10 Regression of ROE to Role of Stakeholders (Part C)
86
Table 11 Regression of ROE to Disclosure and Transparency (Part D)
... 86
Table 12 Regression of ROE to Responsibilities of the Board (Part E)
87
Table 13 Regression of ROE to Total ICD Equivalent Scores
.. 87
Table 14 Regression of ROE to Total Scorecard Equivalent Scores of Companies

In the Holdings Industry

88
Table 15 Summary of ICD Scorecard Results of Each Company on the
Rights of Shareholders (Part A) .
89
Table 16 Summary of ICD Scorecard Results of Each Company on the Equitable
Treatment of Shareholders (Part B)
90
Table 17 Summary of ICD Scorecard Results of Each Company on the
Roles of Stakeholders (Part C)
91
Table 18 Summary of ICD Scorecard Results of Each Company on the
Disclosure and Transparency (Part D)
92
Table 19 Summary of ICD Scorecard Results of Each Company on the
Responsibilities of the Board (Part E)
93
Table 20 Summary of ICD Scorecard Equivalent Scores of Each Company
94

LIST OF FIGURES
Figure 1 Theoretical Framework: Corporate Governance
. 24
Figure 2 Conceptual Framework of the Study
.. 27
Figure 3. Summary of Correlation of Data
59
Figure 4 Regression of ROE to Rights of Shareholders (Part A)
.. 60
Figure 5. Regression of ROE to Equitable Treatment of Shareholders (Part B)
... 62
Figure 6 Regression of ROE to Role of Stakeholders (Part C)
......... 64
Figure 7 Regression of ROE to Disclosure and Transparency (Part D)
. 66
Figure 8 Regression of ROE to Responsibilities of the Board (Part E)
. 67
Figure 9 Regression of ROE to Total Score
... 69
Figure 10. Framework Indicators for Profitability
... 70

10