Does the Annual Report Sufficiently Reveal the Relationship Between Board Characteristics and Bank Performance? Evidence from Bangladesh

Abstract

This research aims to assess the extent to which the annual reports in Bangladesh are able to unveil the relationship between the board characteristics and the bank performance. The disclosure quality and its limitations are the main aspects of the study. The analysis covers key governance variables like board size, board independence, CEO tenure, and political connections along with the financial performance indicators of return on assets (ROA) and return on equity (ROE) for both Islamic and conventional banks. Continuous and dynamic methods of analysis, particularly using System GMM, are applied in the study to determine the extent to which publicly available data reflects the governance-performance relationship taking into consideration the endogeneity and performance persistence effects. The research results show that annual reports present basic numerical data that allow for a limited assessment of the efficiency of the board. Board size and CEO tenure reveal measurable correlations with the financial performance of conventional banks while the link in Islamic banks is weaker owing to governance structures that comply with Shariah and risk-sharing mechanisms within the bank. Political connections are found to have varying effects, while the role of board independence and competency is frequently hidden by the scanty narrative and qualitative reporting. The research indicates that the absence of forward-looking information, inadequacy of narrative content, and non-provision of audit assurance weaken the annual reports’ capability of completely portraying the board’s functioning and the management's strategic decision-making. Annual reports, in general, are a basic source for analyzing the relationship between governance and performance, but their drawbacks require the use of qualitative data, narrative disclosures, and assurance mechanisms as support in order to gain a thorough understanding. These implications are significant for the aforementioned groups if they seek to bring about the changes in areas of transparency, and board oversight, and to further elevate financial performance in the dual banking system of Bangladesh.