Corporate Governance and Banking Stability: The Case of Universal Banks in Ghana

Abstract

Purpose: Many countries both develop and developing have issues concerning corporate governance mechanisms, policy and implementations and there needs to be addressed by researchers and academics. Our study seeks to investigate whether bank stability and corporate governance variables have a robust linkage. Methodology: A country sampling of 23 commercial banks' data from 2008-2019 was used for our analysis. We employed a fixed effect estimator and generalized method of moments (GMM) estimation. Findings: Using the fixed-effect approach, we declare that board size, ages of board members, the financial experience of board members, and CEO duality have a strong positive effect on bank stability measures. We find evidence these corporate governance variables help decrease bank's risk/insolvency. Next, we found out that, percentage of female directors, audit committee activities, and directors' educational composition/qualification have reversed rather than encouraged risk in banks. For the generalized method of moments setting, we discovered that board size has a mixed effect on banks' stability. The audit committee has a negative effect on banks' stability for only the tier 1 capital. Educational qualification and directors' compensation is negatively related to the bank's credit risk measure only. The ages' of directors (average age) is strongly related to the bank's stability measures. However, the percentage of independent directors' on the board is linked to Zscore only, while the financial experience of directors and the percentage of female directors are connected to credit risk measure only while CEO duality has a great linkage with both credit risk and tier 1 capital. Practical Implications: The result indicates that banks still need to strengthen their corporate governance structures, which will help them stay strong and solvent. Originality/Value: This is crucial in understanding how governance works at the banks level and how it help in preventing financial instability.

Navigating board dynamics: Configuration analysis of corporate governance’s factors and their impact on bank performance

“…Within the domain of corporate governance for financial institutions, especially in the banking sector, the size of the board emerges as a crucial determinant [32] (John et al, 2016). Various regulations and guidelines from regulators, investors, and stakeholders are specifically tailored to the banking industry, underscoring the pivotal role of board size and composition in establishing effective governance structures and ensuring financial stability [33]. However, existing literature presents conflicting findings on the impact of board size on bank performance.…”