Corporate governance and firm performance with special reference to the banking system: empirical evidence from Monetengro

The importance of corporate governance is gaining its momentum due to volatile business environment. The financial crisis showed that an efficient corporate governance practice, which can align and balance conflicting interests of various stakeholders (shareholders, creditors, customers, workers, suppliers, etc) nowadays represent the key requirement in the best interests of corporates themselves. This especially refers to the banking system where poor corporate governance practices, especially those referring to CEO compensation schemes, contributed to the financial crisis escalation. The aim of the research is to assess the quality of corporate governance practice in Montenegrin corporate and banking systems. Based on the OECD questionnaire on corporate governance, we surveyed 43 joint stock companies in Montenegro, with the aim of constructing the Corporate Governance Rating (CGR) for Montenegrin companies and banks. The CGR provided a better prospective on the difference of corporate governance mechanisms developed in parallel with the corporate and banking systems of Montenegro. Using OLS, Probit and Logit models, we show that the general corporate governance practice in the banking system can be considered better compared to the corporate sector. However, the difference is not significant.