A non-parametric index of corporate governance in the banking industry: An application to Indian data. (June 2020)

• Record Type: Journal Article
• Authors: Gulati, Rachita; Kattumuri, Ruth; Kumar, Sunil
• Is Part Of: Socio-economic planning sciences. Number 70(2020)
• Publication Date: 2020-06
• Subjects: Corporate governance index -- Data envelopment analysis -- Benefit-of-the-doubt model -- Indian banks -- Composite indicators; G21 -- G30 -- G38; Planning -- Periodicals; Economic policy -- Periodicals; Social policy -- Periodicals; Planification -- Périodiques; Politique économique -- Périodiques; Politique sociale -- Périodiques; ECONOMIC PLANNING; SOCIAL PLANNING; DECISION-MAKING; 361
• DOI: 10.1016/j.seps.2019.03.008
• Languages: English
• ISSNs: 0038-0121

Abstract

Abstract: This paper presents a methodological framework for constructing a non-parametric index of corporate governance for banks. The index is constructed by aggregating six distinct dimensional indices capturing different dimensions of corporate governance, namely board effectiveness, audit function, risk management, remuneration, shareholder rights and information, and disclosure and transparency. For aggregation, a tailored version of data envelopment analysis (DEA) approach which is popularly known as constrained 'Benefit-of-the-Doubt (BoD)' model is employed. This approach is unique and distinctive in the sense that it requires no a priori knowledge of weights, and assigns endogenous weights obtained from actual data to individual dimensions of bank governance in order to construct a composite index of corporate governance. This methodological framework has illustrated by applying it for a data set of 40 Indian banks operating in the year 2017. The data set has been compiled using 58 governance regulations as defined by relevant jurisdictions. Highlights: The paper presents the methodological framework to construct a corporate governance index for banks using DEA based 'benefit-of-the-doubt' approach. This paper provides a comprehensive multi-dimensional framework for assessing the corporate governance of a bank. An illustration is made using a data set of 40 Indian banks operating in the year 2017. The constrained BoD model used assigns endogenous weights to individual dimensions of bank governance.