The Impact Of Corporate Governance On Bank Stability And Efficiency

As a result of excessive banking irregularities and setbacks around the globe,there has been an increased concern in the effects of corporate governance on bank stability and efficiency.Corporate governance creates structures that evaluate the activities of the organization,such that actions or work proceedings can be measured more formally and transparently so that real situational inference can also be drawn.Corporate governance practices serve as the means of accomplishing organizational principles and monitoring performance through an efficient board of directors.Quality corporate governance has now become a conventional subject of concern in the world of business.The statement ‘good corporate governance’ has been incorporated in the banking sector over the last decade as an element to improve performance.The main purpose of corporate governance structure is to contribute to the enhancement of corporate performance,guarantee banking sector stability,and promote universal banks’ efficiency to avoid massive disasters before occurring.Research on corporate governance and its effect on bank stability and efficiency has been conducted in developed markets around the globe,in particular,the USA,China,and eurozone,but very little data is given in African countries,particularly in Ghana.This research explores the impact of corporate governance on financial sector stability and efficiency of Ghanaian universal banking companies during the period 2008-2019.The researcher focused on Ghana because it is among the few countries in Africa pursuing a universal banking policy by implementing all the three Basel universal policy framework more coherently since2004.Archival data were collected from individual banks and the Bank of Ghana website covering all Ghanaian universal banks with available data for the 12 years ending 2019.The study aims to analyze if there is a link between corporate governance and bank stability and find the connection between corporate governance and bank efficiency.The main analysis methods in this study are multiple regression panel data analysis,data envelopment analysis,and other related models.Firstly,using a fixed-effect estimation method,the result recommends that bank stability proxied by Z-score influence the age of director,board financial experience,board educational qualification,and board audit committee positively.The dissertation showed that board audit committees were associated with increased bank stability.The rationale at this juncture seems to be that board audit committees are an important element of universal banks’ board roles in Ghana,offering independent expert supervision of bank operations to safeguard the interests of shareholders.The credit risk indicator is significantly related to Board size,CEO Duality,board educational qualification,board audit committee,and female directors.Tier 1 capital is also significantly related to six out of the then governance mechanism used in the study.It suggests that corporate governance is vital to ensuring the solvency,liquidity,and credit risk of financial institutions,especially banking and non-banking financial firms.Next,employing the two-step system Generalized method of moments(GMM)methods,the results based on bank stability and corporate governance were mixed.Board size has a significant positive effect on the bank Z-score and NPL indicators of stability and insignificantly positive related to the Tier 1 capital ratio measure.Interestingly the number of board members has a substantial positive relation with the Credit risk ratio.Board age is significantly positively related to all three bank stability indicators.The number of Female directors is also positively related to non-performing loans.All the independent variables(thus components of corporate governance)expect board member’s affiliation had a significant relationship(+/-)with at least one of the dependent variables(bank stability measures).This result confirms that the explanatory variables impact the stability of universal banks in Ghana.Finally,the result based on corporate governance and bank efficiency in chapter 6 of the dissertation shows a positive relationship between the corporate governance index and the bank efficiency indicators adopted.This result suggests that an enhancement of key corporate governance variables will lead to higher firm efficiency.However,the sub-components thus,the supervisory board index and risk management index had mixed effects on cost efficiency and technical efficiency.These results suggest that an eccentricity in variation in corporate governance practices of mechanism would significantly affect both the technical and cost-efficiency of universal banks in Ghana.Companies will benefit from this doctoral study because investors,central and federal banks,and company directors could better predict the stability of banks and know their level of efficiency based on the study results,which could lead to greater trust among stakeholders in the valuable impact of banks in their communities.Policymakers can adopt the results of this dissertation in addressing bank governance issues/challenges.The DEA-VRS efficiency values indicate that banks in Ghana still have cost and technical inefficiency gap to close.Therefore,as advised,banks should construct their corporate structure well to help resolve inefficiency challenges.They can achieve this by letting their board members mentored or coached by the boards of leading banks in countries like China,Japan,and the U.S.