Corporate governance mechanisms and firm performance in a developing country
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Date
2020-03-31
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Publisher
International Journal of Law and Management
Abstract
Purpose – The purpose of this study is to examine the influence of corporate governance mechanisms
recommended by the Securities and Exchange Commission (SEC) of Ghana on firm performance as
measured by accounting-based ratios (return on assets, return on equity and earning per share) as well as
market-based measure (Tobin’s Q) among listed Ghanaian companies from 2006 to 2018. These mechanisms
are: board composition (board size, inside directors and outside directors), board committees (audit,
remuneration and nomination), chief executive officer (CEO) duality/separation, board meetings and
shareholder concentration.
Design/methodology/approach – The study used panel regression analysis of data from 38 listed
firms in Ghana from 2006 to 2018 to test how each corporate governance variable initiated by the SEC of
Ghana contributed to firm performance. Data were extracted from the annual reports of listed
companies.
Findings – The study found that the presence of both insiders and outsiders on the corporate board
improved financial performance. Similarly, board size, frequency of board meetings and shareholder
concentration/ownership structure generally had a positive impact on financial performance. However, the
presence of board committees generally had a negative impact on financial performance while CEO duality
had no impact on financial performance.
Practical implications – The study contributes to the understanding of how good corporate governance
practices affect firm performance for both academics and particularly Ghanaian policymakers.
Originality/value – This study provided new findings to bridge the gaps in the general corporate
governance literature relative to the lack of consensus on financial impacts of corporate governance
mechanisms. The finding contributes to knowledge by providing new and original evidence that some current
corporate governance mechanisms are not effective in minimizing the agency problem in a developing setting.
Furthermore, the authors anticipate that the outcomes of this research, which so far is the most
comprehensive study in the Ghanaian context in terms of the coverage of corporate governance mechanisms
specified by the SEC of Ghana, can significantly shape corporate governance discourse, practices and policies
in Ghana, particularly and in other developing countries generally to improve financial performance and
corporate sustainability.
Description
Research Article
Keywords
Corporate governance, Firm performance, Securities and Exchange Commission, Ghana, financial performance, SEC of Ghana, policymakers, accounting-based, mechanisms
Citation
Puni, A. and Anlesinya, A. (2020), "Corporate governance mechanisms and firm performance in a developing country", International Journal of Law and Management, Vol. 62 No. 2, pp. 147-169. https://doi.org/10.1108/IJLMA-03-2019-0076