The Effect of Board Composition on Corporate Financial Performance: Evidence from Listed Firms in Ghana

Abstract

This study adds to the literature on corporate governance and corporate financial performance by assessing the effect of board composition on the financial performance of listed firms in Ghana. Using a static panel regression model, the results show that contrary to the agency theory, inside directors tend to have a positive and significant effect on corporate financial performance whilst outside directors have a negative but statistically insignificant effect on corporate financial performance of the listed firms in Ghana. In addition, it was found that the existence of nomination committees tend to have a negative effect on corporate financial performance of listed firms in Ghana. The study recommends that listed firms in Ghana should look at how to continuously empower inside directors to be able to perform their work well instead of bringing in more outside directors to check them. Moreover, the nomination process of board members must be made transparent to achieve the objective of recruiting competent and ethical minded executives to the board. Guidelines for executive recruitment to the board must be established and if possible the nomination committee must employ the services of executive-hunting agency which would assist the committee in the recruitment process.

Influence of Corporate Governance Structure on Financial Performance: A Case of Listed Commercial Banks in Kenya

“…These findings are consistent with the findings of Taghizadeh and Saremi (2013) who also obtained a negative relationship between board diversity and the performance measures. Puni (2015) Kamazima, Mathenge and Ngui results also indicated that board committees had no statistically significant effect on the corporate financial performance of listed firms which is consistent with the findings of the study. The findings are also consistent to those of Hermalin and Weisbach (2001) who observe that large boards consume a lot of time in the decision-making process because it is difficult to arrive at a consensus and they lack cohesiveness.…”

Corporate Governance and Tobin's Q as a Measure of Organizational Performance

“…Annual Reports Coombes and Wong, 2004;Donaldson and Davis, 1991;Fosberg and Nelson, 1999;Hashim and Devi, 2009;Ritchie, 2007 Board committees Total number of board committees in the company Annual Reports Adams, Hermalin and Weisbach, 2010;McColgan, 2001;Puni, 2015 Ownership concentration Total per cent of equity shares held by the first 5 largest shareholders Annual Reports Desender, 2009;Fama and Jensen, 1983;La Porta et al, 2000;Shleifer and Vishny, 1986;Wahla, Shah and Hussain, 2012 Age Number of years firm is listed on stock exchange KSE website Fama and French, 2004;Shumway, 2000 Size Measured in total sales of the firm (natural logarithm)…”

Corporate Social Responsibility and Financial Performance Amongst Rural and Community Banks in Ghana

“…According to the agency theory, the non-executive directors are assumed to be essential monitors that supervise and control the executives. There are volumes of empirical literature that argue that boards dominated by outside directors or non -executive directors impact positively on firm performance (Cho and Kim, 2007;Bino and Tomar, 2007;Laun and Tang, 2007;Trabelssi, 2010;Yesser et al, 2011;Al-Hawary 2011;Al-Sahafi et al, 2015;) On-Board committees: There is empirical literature which suggests a positive relationship between board committees and financial performance (see Wild, 1994;Liang & Weir, 1999;Vefaes, 1999b;Young & Bucholtz, 2010;Black & Kim, 2012;Bussoli, 2013;Puni, 2015). From the preceding discussions, it is apparent that corporate governance influences firms' ability to deploy available capital to achieve financial performance.…”