Does corporate governance explain the quality of bank loan portfolios? Evidence from an emerging economy

Abstract

Purpose – The purpose of this study is to assess the impact of corporate governance variables on the quality of bank loan portfolios. Design/methodology/approach – The study used a panel-corrected standard errors estimation model with the most recent 11-year data from2006 to 2016 on selected Ghanaian banks. Findings – The findings indicate that corporate governance is relevant within the banking sector and plays a key role in improving loan quality. Having a large board with the attendant pool of expertize, boards with mostly non-executive members and duality of the CEO-board chair can be harnessed to improve bank loan quality. Female participation on boards seems to detract from good performance, creating the impression of tokenism in the Ghanaian banking sector. Originality/value – The study has important implications for board construction within the banking sector and the discourse on bank asset quality. Keywords Corporate governance, Asset quality, Bank loan quality, Banking sector, Gender diversity, Non-performing loans, NPLs, Banks, Financial institutions and services, Corporate finance and governance