Governance Dynamics and Capitalisation of Banking Sectors in Anglophone West African Countries

Abstract

The commencement of the African Continental Free Trade Area (AfCFTA) has re-echoed the need for more in-depth empirical investigations on the nexus between governance dynamics and capitalisation of banking sectors in Anglophone West African countries. The Economic Community of West African States (ECOWAS) is a major player in African continental trade in terms of large markets, abundant natural resources, and relative peace and stability. Institutional-stakeholder theory underpinned this quantitative-parametric study, which used secondary data from Gambia, Ghana, Nigeria, and Sierra Leone from 2001 to 2020. Liberia was excluded from the study due to incomplete data. Governance is the independent variable with two facets: internal dynamics (board effectiveness and management efficiency) and external dynamics (the rule of law quality and quality of political and financial systems). Deposit interest rate and passage of time are the control variables. Capitalisation of banking sectors is the dependent variable. Descriptively, the studied banking sectors have weak but positive operating outlooks, with Ghana outperforming others (followed by Gambia, Sierra Leone and Nigeria). The work re-established that no single governance model is a ‘fit-for-all’ as the country-wise findings differ. Results of the multivariate general linear model show that the political system has a significant positive effect on the aggregate capitalisation of studied banking sectors; board effectiveness, management efficiency, and financial system have significant negative effects on the aggregate capitalisation of sampled banking sectors. The study established the relevance of institutional-stakeholder theory and the importance of controlling corruption. The need for synergy among the banking sectors that were studied cannot be ignored, as further studies could cover other economies and economic groups.