International Journal of Business and Economics Volume 21, No. 3 December, 2022

Complementing and Conflicting Views of Corporate Governance and Regulations in Banks and Financial Institutions: A Review

Sabin Bikram Panta

Kathmandu University School of Management, Kathmandu University Nepal

Pradeep Kumar Gupta

LM Thapar School of Management, Thapar Institute of Engineering and Technology, India

Rajesh Sharma

Kathmandu University School of Management, Kathmandu University Nepal

Abstract

This paper reviews the previous studies for identifying the findings related to governance structure and regulations of Banks and Financial Institutions (BFIs) from the perspective of legitimacy theory. The findings are inconclusive on complementing or conflicting as previous literature on the role of different governance mechanisms of BFIs has no clear consensus and has also ignored the regulatory arbitrage, an important dimension of governance. The study contributes to the literature in two ways. Firstly, most of the past studies, empirical or review, mainly focus on the agency theory or the stakeholder theory to study the BFIs governance. This study focuses on the legitimacy theory as the agency theory or the stakeholder theory cannot directly be applied in the BFIs due to its specific nature. Secondly, the regulatory arbitrage is one of the main reasons as why the governance between BFIs and non-financial firms is different.

Keywords：Agency Theory, BFI, Governance, Legitimacy Theory, Regulation.

JEL Classifications：G21, G23, G28, G38.

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