The Effect of Governance Structures and Sustainability Practices on Firm Profitability: Board Size as The Key Determinant

Abstract

This study, titled “The Effect of Governance Structures and Sustainability Practices on Firm Profitability: Board Size as The Key Determinant”, is the outcome of a three-month internship under the Department of Business Administration, Sonargaon University as part of the BBA degree requirement. The study explores how corporate governance and sustainability practices influence firm profitability, with a focus on listed commercial banks in Bangladesh. It also draws practical insights from Hossain & Hossain Chartered Accountants, a leading professional accounting firm known for its integrity and transparency in financial reporting. The study examines the effects of governance variables—board size, independent directors, female directors, and audit committee composition—as well as sustainability practices, including the presence of a sustainability committee and gender diversity, on firm performance. Firm-level characteristics, such as size and leverage, are also analyzed. Using a five-year panel dataset (2019–2023) of 16 listed commercial banks from the Dhaka Stock Exchange (DSE), multiple regression analysis was applied. Diagnostic tests confirmed the reliability of the model, with no multicollinearity issues (VIF < 2). Profitability is measured by return on assets (ROA). The findings indicate that board size is the only statistically significant determinant of profitability (β = 0.814, t = 7.987, p < 0.001), suggesting that larger boards improve monitoring, decision-making, and overall firm performance. Other governance and sustainability variables, along with firm-level characteristics, showed positive but insignificant effects. These results highlight the importance of optimizing board structures to enhance performance, while policymakers and regulators may consider strengthening the roles of independent directors, female participation, and sustainability oversight to make these mechanisms more effective. The study contributes to the literature on corporate governance and sustainability in emerging markets, offering empirical evidence from Bangladesh’s banking sector.