Corporate Governance and Bank Stability in Africa: An Income Bracket Evidence

Abstract

This study attempts to explore effects of corporate governance structures on bank stability in Africa using the three income brackets to group banks in different contexts. Specifically, objectives of the study includes: to examine the nature of corporate governance and bank stability across Africa, to examine the effect of corporate governance structures on bank stability in Africa and to determine the effect of corporate governance structures on bank stability in the three income brackets in Africa. The study employs bank and macroeconomic levels data from Bankscope and World Development Indicators databases spanning from 2006 to 2013. Twenty-nine countries including 215 banks were included in a two-step generalized methods of moment’s panel data. The study shows that the significance of corporate governance structures varied across the Africa indicating that context matter to in instituting corporate governance structures as a means of promoting bank stability. The study further finds that CEO duality and none of corporate governance structures affected bank stability in low and lower middle income countries respectively. Again the study show that non-executive members and audit committee independence affected bank stability in upper middle income countries in Africa while board size and CEO duality affected bank stability in Africa at large. These findings suggest that, banks must institute good corporate governance structures and avoid bad corporate governance in their quest to pursue stability. Again, bank management must be careful the in enforcement of corporate governance structures are the governance structures may yield varying effects in different contexts.