INTERNAL CONTROL EFFECTIVENESS & ITS RELATIONSHIP WITH FINANCIAL PERFORMANCE
Download| Volume 11 Issue 2 2015 | |
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| Author(s): |
Dr. Zahid Ali Channar
Maha Khan
Irfan Haider Shakri
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| Abstract | This research attempts to investigate the functionality of each of the five Internal control components, the effectiveness of the control system, and its relationship with financial performance. The sample size for this research is 210 respondents comprising of employees from 6 Banks in Hyderabad: NBP and Sindh bank from the public sector, MCB, and HBL from the private sector, Meezan Bank, and Bank Alfalah as Islamic banks. In this study, internal control is measured by the five components whereas financial performance is measured through three profitability ratios. Data is collected through primary as well as secondary sources. The primary source used is a questionnaire taken from a combination of instruments developed by Baker, Castro, Labrena & Meyer (2005). The secondary source used is the financial statements of the sample banks for four years. Return on Asset (ROA), Return on Equity (ROE), Profit expense ratio (PER) is the profitability ratios used to measure the financial performance. Data were analyzed using the Statistical Package for Social Scientists (SPSS). The statistical methods of correlation and one-way ANOVA were used for the testing of the research hypotheses. Results showed that Internal control effectiveness is strongest in private banks, followed by public banks, and weakest in Islamic banks, although the difference is not statistically large, slight variation exists. Moreover, private banks had a high level of financial performance, public banks had a moderate level of financial performance whereas Islamic banks were found to have low financial performance. Hence it was concluded that Internal control effectiveness has a positive relationship with the financial performance of the banks. The detailed evaluation and understanding of the Internal control system effectiveness and its components provides valuable insights to managers and employees on how they can manage or improve their control systems to achieve greater operational as well as financial performance. |
| Keywords | Internal Control Effectiveness, Control components, Financial performance, Public banks, Private banks and Islamic banks |
| Year | 2015 |
| Volume | 11 |
| Issue | 2 |
| Type | Short Report |
| Recognized by | Higher Education Commission of Pakistan, HEC | Category | "Y" | Journal Name | IBT Journal of Business Studies | Publisher Name | ILMA University | Jel Classification | - | DOI | http://dx.doi.org/10.46745/ilma.jbs.2015.11.02.08 | ISSN no (E, Electronic) | 2409-6520 | ISSN no (P, Print) | 2416-8393 | Country | Pakistan | City | Karachi | Institution Type | University | Journal Type | Open Access | Manuscript Processing | Blind Peer Reviewed | Format | Paper Link | http://ibtjbs.ilmauniversity.edu.pk/journal/jbs/11.2/8.%20Internal%20Control%20Effectiveness%20&%20Its%20Relationship%20with%20Financial%20Performance.pdf | Page | 92-107 |