The governance-performance relationship: evidence from Ghana

Abstract

Purpose The purpose of this paper is to investigate the impact corporate governance, measured by a governance index, on the performance of listed firms in a developing economy, Ghana. It also evaluates the effect of the introduction of a code of corporate governance on compliance rates across Ghanaian firms as well as assessing the impact of the code’s introduction on firm performance for the study period 2000-2009. Design/methodology/approach The paper develops a Ghanaian corporate governance index (GCGI) containing 33 provisions to measure corporate governance quality during the pre-code and the post-code sub-periods. The authors use a panel data analytical framework and fixed effects regressions to analyse the governance-performance relationships. Findings After controlling for endogeneity, the authors find a statistically significant and positive relationship between the GCGI and firm performance. The analysis shows evidence of a statistically significant increase in the degree of compliance with the Ghanaian Code from the pre-2003 sub-period to the post-2003 sub-period. The authors also find that the introduction of the code has led to improved firm performance. However, not all elements of corporate governance appear to have a significant effect on firm performance. Research limitations/implications One limitation of this study is the development of a corporate governance index. The binary coding used to construct the GCGI may not reflect the relative importance of the different corporate governance provisions. This means that all elements included in the index are given equal weighting. Future research may assign weights to each of the corporate governance provisions but this may have the disadvantage of making subjective judgements relative to the importance of each corporate governance provision recommended by the Ghanaian Code. Practical implications These results have important implications for both policy makers and companies. For policy makers, it is encouraging for the development of a code of corporate governance to regulate firms rather than enforcing rigid laws that may not be value relevant. For companies, the improvement in compliance with a code of corporate governance can provide a means of achieving improved performance. Originality/value This paper adds to the limited evidence on the governance-performance relationship in developing economies and in particular it analyses the role of a governance index. It is also the first paper to compare the pre- and the post-code governance index-performance relationship in an African or developing country.

What drives corporate governance quality in emerging African economies? Evidence from Ghana

“…The figure indicates that the Ghanaian listed firms have considerably improved their governance quality over time with the firms complying with 73% of the Ghanaian Code provisions in 2009 compared to 53% in 2000. This increase in compliance with the Ghanaian Code is in line with prior studies (Henry, 2008;Price et al, 2011;Ntim et al;2012;Owusu and Weir, 2013;Abraham et al, 2015;Owusu and Weir, 2016) who reported a significant increase in compliance with their country specific codes of best practices. In contrast, Gomper et al (2003) using the US governance data reported a stable compliance with corporate governance among listed firms over a long period of time.…”

“…This provides us a ten year window surrounding the introduction of the Ghanaian Code. In this study, and as in Owusu and Weir (2016), we directly measure the firmlevel governance quality by developing a GCGI because there is no corporate governance data readily available from any rating agencies in Ghana. Following Gompers et al (2003) and Garay and Gonzalez (2008), we developed the GCGI by assigning '1' point to each aspect of compliance with the Ghanaian Code provisions complied and disclosed in the firm's annual report or '0' otherwise.…”

Pengaruh Penerapan Tata Kelola Perusahaan Terhadap Profitabilitas Perbankan di Indonesia

“…Penelitian di Turki oleh Ararat, Black, & Yurtoglu (2017) mengembangkan Turkey Corporate Governance Index untuk dapat menyesuaikan dengan kondisi negara yang diteliti. Secara keseluruhan, mayoritas penelitian yang mengukur tata kelola perusahaan yang terdiri dari beberapa mekanisme dan diukur menggunakan indeks menyimpulkan pengaruh yang positif terhadap profitabilitas (Ararat, Black, & Yurtoglu, 2017;Owusu & Weir, 2016). Penelitian di Indonesia menunjukkan bahwa penerapan tata kelola perusahaan memberikan pengaruh terhadap peningkatan profitabilitas dan kinerja perusahaan (Hastuti, 2005;Kaihatu, 2006;Prasinta, 2012;Sukasih & Susilawati, 2011;Satriadi, Bagaskara, Pranoto, & Haryono, 2018).…”

The Relationship between Agency Cost and Corporate Performance among Manufacturing Companies in Malaysia

“…In Ghana, Owusu and Weir (2016) used Ghanaian corporate governance index (GCGI) as a proxy of corporate governance and included all listed companies on the Ghana Security Exchange (GSE) over the period of 2000 to 2009 which is practical because the 'Ghanaian Corporate Governance Code' was introduced in 2003. The authors found that the Ghanaian corporate governance index (GCGI) and firm performance are significantly and positively related.…”