Factors Affecting Corporate Governance on Financial Risk of Nepalese Commercial Banks

This study examines the impact of corporate governance on the financial risk of Nepalese commercial banks over the period from 2015/16 to 2023/24. Non-performing loans (NPL) and cash reserve ratio (CRR) are selected as the dependent variables, while the independent variables include board size, audit committee, ownership structure, leverage, board independence, and foreign capital. The study is based on secondary data from 20 commercial banks, totaling 140 observations. The data were sourced from the Nepal Rastra Bank, Nepal Stock Exchange (NEPSE) Limited, and the Securities Board of Nepal (SEBON) website. Correlation coefficients and regression models were employed to assess the relationship between corporate governance and financial risk in Nepalese commercial banks. The findings reveal that board size, board independence, and foreign capital have a positive relationship with non-performing loans, indicating that as these factors increase, financial risk also rises. Conversely, audit committee effectiveness, ownership structure, and leverage are negatively associated with non-performing loans. Additionally, the study shows that board size, audit committee, ownership structure, leverage, and board independence positively influence the cash reserve ratio, while foreign capital exhibits a negative relationship with CRR.