Corporate Governance and Its Impact on Financial Performance of Commercial Banks in Ghana

Abstract

The paper examines corporate governance and its impact on the financial performance of commercial banks in Ghana. The study employs a sample of twenty commercial banks with one hundred and thirty-eight observations. Data is sourced from the audited financial statements of commercial banks through the Orbis database for seven years, from 2011 to 2017. The study employs return on assets (ROA) as a proxy for bank profitability. Also, the study uses the cost to income ratio, bank size, net interest margin, board composition, bank age, and board size as independent variables. A random-effect and linear regression are applied. The empirical findings reveal that board composition, bank size, and net interest margin significantly impacted bank profitability. However, the cost to income ratio and bank age had a significant negative impact on bank profitability. On the other hand, board size had no significant impact on bank profitability. The study recommends that bank owners appoint experts and an adequate number of independent directors to help reduce conflict of interest and make effective decisions. Furthermore, banks should implement efficient cost-saving mechanisms to cut their overhead costs as enormous overhead costs reduce bank profitability. Banks should periodically organize campaigns on deposit mobilization to increase their assets as huge asset banks have the advantage of diversifying their assets, thus minimizing risk in the volatility period. Finally, banks should develop efficient loan recovery strategies to improve their asset quality, as this significantly impacts banks' net interest margin and profitability.

Corporate Governance on Financial Performance: Evidence from Listed Commercial Banks in Sri Lanka

“…However, board size, non-executive directors, female directors, and board meetings do not reveal any significant relationships with both ROA and ROE panels. These findings agree with the findings of scholars such as Rose ( ), Jenson (1976 as cited by Harun (2017), Effiok et al (2012).…”

“…A mixed result can be also identified related to the frequency of board meetings (Karamanou et al 2005;Danoshana & Ravivathani 2013;Akpan 2015). Further, the same scenario can be also identified as related to the board ownership (Kibrysfaw Getahun 2013;Harun 2017). As existing knowledge generates puzzling results related to the areas of corporate governance and financial performance and moreover, as per the researchers' knowledge, in Sri Lankan context, few studies have been conducted related to corporate governance and financial performance with reference on listed commercial banks in Sri Lanka, it is necessary to conduct research with further investigating the relationship between corporate governance and financial performance in listed commercial banks in Sri Lanka.…”

“…Although the agency theory more focuses on the board of directors' accountability to the shareholders, stakeholder theory expanded this accountability not only to the shareholders but also in different sub-groups in the business environment such as suppliers, employees, business partners and so on (Freeman et al, 2004). As per resource dependency theory, board of directors are considered as a provider of the resources such as information, skills, business expertise, access to key constituents such as suppliers, buyers, public policymakers, and social groups as well as legitimacy to the business (Harun, 2017). According to the stakeholder theory, directors play an advisory and counseling role to the firm management.…”

“…Thus, a dual role related to the board of directors can be identified as per the above-explained three theories. Finally, agency theory and stakeholder theory have seen corporate governance as a mechanism to minimize agency conflict while recourse dependency theory has seen corporate governance as a mechanism to interact the business organization with different resources (Harun, 2017).…”

Board Attributes and Credit Risk Exposure of Listed Deposit Money Banks in Nigeria: The Moderating Effect of Risk Committee Size

“…Using regression analysis, results showed that there was a positive but statistically insignificant association between CEO duality and ROA and ROE". Similarly, Afriyie, Aidoo and Agboga [38] examined "corporate governance and its impact on the financial performance of commercial banks in Ghana on a sample of twenty commercial banks. For a seven -year period.…”