Corporate Governance Practices and Performance of Microfinance Institutions in Ghana.

Abstract

This study examined the relationship between corporate governance and performance of the microfinance industry in Ghana. The study used fixed effect panel data regression analysis. The specific objectives were to identify the key corporate governance components within the microfinance sector, analyse the effect of recognised corporate governance practices on Tobin’s Q of MFIs, and also to analyse the effect of recognised corporate governance practices on R OA of MFIs. The corporate governance characteristics were board size, CE O duality, board composition, and board diversity. According to the results, the mean ratio of Tobin’s Q is 0.682, implying that on the average a lot of the microfinance firms are not doing well at all. The suggestion here is that these firms are barely breaking even. The maximum Tobin’s Q indicating performance is shown to be 156% and the minimum as low as 13%. The Return on Assets (R OA) shows a wide variation between firms. The mean performance of MFIs relative to R OA is shown to be 21%, with the minimum being -75%, with the maximum being 78%. The regression analysis also found that board size and board diversity had a positive impact on firm performance, while CE O duality and board composition had a negative impact on firm performance. There was evidence to show that most of the MFIs in Ghana adopted the two-tier board structure, where different people occupied the CE O and chairmanship positions. The study also found most of the MFIs to be relying more on debt financing and that the debt structure impacted positively on firm performance. The study found mixed results with regards to corporate governance characteristics and the performance of MFIs in Ghana, but it is undoubtedly clear that corporate governance structures have impact on the performance of MFIs in Ghana