Corporate Governance, Shareholder Activism and Firm Performance in Ghana

Abstract

This study reexamines the effect of shareholder activism, as a corporate governance mechanism, on firm performance. The owners of the firm (the shareholders) employ the managers (the agents) to manage the firm for them but this employment contract has the potential risk of adverse selection and moral hazard. Hence there is the need for the shareholders to be active and monitor the firm. This constitute shareholder activism. But the argument is whether shareholder activism improves firm performance? Previous studies have found divergent conclusions because they all used the traditional accounting performance measure (ROA) which is not comprehensive enough because it does not account for the cost of equity. This study adopts contemporary value based performance measure, which is Economic Value Added (E.V.A) and Market Value Added (M.V.A) to measure firm performance from 2007 to 2013. These performance measures captures both costs of debt and equity which is able to show the true value of the firm. The regression results show that shareholder activism actually improves firm performance (E.V.A). Implying that shareholders should be active investors and monitor their firms because monitoring improve shareholder wealth. Investor conference should also be encouraged to improve manager-shareholder relations so as to mitigate the agency problem.