Board Independence and Loan Loss Provisioning: Evidence from Listed Commercial Banks in Bangladesh

Abstract

This study examines the association between board independence and banks' loan loss provisioning and the moderating effect of the COVID-19 pandemic, institutional ownership, and audit committee activity. To circumvent the potential endogeneity issue, this study utilizes a panel data approach with random-effects estimation as well as two-stage least-squares (2SLS) regression with IVs for listed commercial banks in Bangladesh and a time span from 2014 to 2024. The results of this study show that there is a positive association between the ratio of independent directors on the board and banks' loan loss provisioning, which means banks with a high ratio of independent directors have higher loan loss provisioning. In addition, the relationship between board independence and loan loss provisioning is positively affected by the COVID-19 pandemic, while the moderating effects of the COVID-19 pandemic and institutional ownership and audit committee activity on the relationship between board independence and loan loss provisioning are not statistically significant. Perhaps most important, the findings are fairly robust to alternative model specifications and estimation methods. The direct influence of board independence is statistically insignificant after accounting for possible endogeneity by using the two-stage least squares (2SLS) estimation, but overall, the results support the credibility of the study and add to the corporate governance and banking literature.

Keywords: Loan Loss Provisioning, COVID-19 pandemic, Institutional Ownership, Audit Committee Activity, Commercial Banks

DOI: 10.7176/RJFA/17-3-08

Publication date: September 30^th 2026