Agency Conflict and Bank Interest Spreads in Ghana

Abstract

This study examines the relationship between interest rate spreads in the Ghanaian banking industry and variables that reflect convergence/divergence between managerial goals and corporate goals of which the key variables are executive compensation and bank ownership structure. Using data covering the period 1999–2011, this study employs a panel regression to examine how agency factors affect interest rate spreads in Ghana. The results of the study indicate that executive compensation is associated with higher net interest margins, suggesting that managers operate on higher margins since they can extract excess rents. The findings of the study also show that asset size, the level of concentration in the banking industry, the level of capital held by banks, the reserve requirement, and the level of inflation all positively contribute to the observed high interest spreads. Our results are robust to the control of several bank‐specific, industry‐specific, regulatory and macroeconomic factors