Transformations  in
Business & Economics

CONFLICT OF INTERESTS AND PROFITABILITY. A LEGAL AND ECONOMIC APPROACH
Tudorel Toader, Florin Oprea, Ada-Iuliana Popescu

ABSTRACT. This paper aims to emphasize the effects of conflict of interests' existence (audit committee member duality) on organizations profitability in the framework of corporate governance and audit principles. Using data collected for 10 years' period (2006-2015) from 180 commercial banks in CEE countries, we analyzed the effect of interest conflict presence (one member of the audit committee also part of management board) on bank profitability, measured as the return on average total assets, and the return on average equity, respectively. The control variables consist in bank specific, macroeconomic and industry specific factors. The results of our study suggests that the presence of conflicts negatively affects the profitability, which leads to the conclusion that an improvement of the legal framework regarding incompatibilities of executive positions in companies could enhance the quality of governance and also the economic results of organizations. Our findings and recommendations could be useful both for banking industry organizations and governmental/supervising authorities, in their specific efforts to improve the overall quality of activity .

KEYWORDS:  conflict of interest, legal incompatibilities, audit committee, corporate governance; bank profitability.

JEL classification:  G3, G21, M42.