THE ROLE OF CORPORATE GOVERNANCE ON PERFORMANCE AND FAILURE OF LOCAL BANKS IN GHANA

ABSTRACT 

The banking industry in Ghana has undergone a major shift in focus, partly in response to the advent of global financial liberalization and innovation. The industry increased the number of banks to thirty-four (34) as at December, 2016 and subsequently to thirty-seven (37) in 2017. The Ghanaian economy also experienced a series of macro-economic shocks, which impacted adversely on the banking industry, exposing weaknesses in the governance structures, the industry also experienced a tighter regulatory and governance landscape with the enactment of the Banks and Specialized Deposit-Taking Institutions Act, 2016 (Act 930), together with a stream of initiatives to further strengthen and stabilize the banking sector. The study attempts to investigate the impact of corporate governance on the performance of local banks in Ghana. The study utilized a panel estimation method over the period 2008-2018. The estimation results of the study shows that even though board composition had a positive impact on local bank performance it was not statistically significant. Additionally, the impact of the number of women on the board of local banks (gender diversity) was positive but was not statistically significant different from zero.  However, the study found that the effect of the size of the board of local banks on their performance was positive and statistically significant at five percent level. Also, the study confirmed a non-linear relationship between the size of the board of local banks and their performance, particularly in an inverted U-shaped relationship. This implies that the increase of the size of the board has a positive effect on local banks performance but only to a certain point where any further increase has a negative effect on performance. The threshold value (optimum number) of members of the board of local banks was determined by the study to be nine (9). The study thus recommends that the regulator should encourage the appointment of women on the boards of local banks. Also, non-executive directors with in-depth industry expertise should be appointed unto the boards of local banks. Lastly, the study recommends the number of persons on the board of local banks should not go beyond nine (9) members.