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Article
Publication date: 1 October 2020

Emmanuel Sarpong-Kumankoma, Joshua Yindenaba Abor, Anthony Q. Q. Aboagye and Mohammed Amidu

This study aims to analyze the potential implications of economic freedom and competition for bank stability.

Abstract

Purpose

This study aims to analyze the potential implications of economic freedom and competition for bank stability.

Design/methodology/approach

Using system generalized method of moments and data from 139 banks across 11 Sub-Saharan African (SSA) countries during the period 2006–2012, this study considers whether the degree of economic freedom affects the relationship between competition and bank stability.

Findings

The results show evidence of the competition-fragility hypothesis in SSA banking, but suggests that beyond a setting threshold, increases in market power may also be damaging to bank stability. Financial freedom has a negative effect on bank stability, suggesting that banks operating in environments with greater financial freedom generally tend to be less stable or more risky. The authors also find evidence of a conditional effect of economic freedom on the competition–stability relationship, implying that bank failure is more likely to occur in countries with greater economic freedom, but with low competition in the banking sector.

Practical implications

The results suggests to policy makers that a moderate level of competition and economic freedom may be the appropriate policy to ensure the stability of banks.

Originality/value

The study provides insight on the competition–bank stability relationship, by providing new empirical evidence on the effect of economic freedom, which has not been previously considered.

Details

International Journal of Productivity and Performance Management, vol. 70 no. 7
Type: Research Article
ISSN: 1741-0401

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Article
Publication date: 30 March 2020

Albert Puni and Alex Anlesinya

The purpose of this study is to examine the influence of corporate governance mechanisms recommended by the Securities and Exchange Commission (SEC) of Ghana on firm…

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1911

Abstract

Purpose

The purpose of this study is to examine the influence of corporate governance mechanisms recommended by the Securities and Exchange Commission (SEC) of Ghana on firm performance as measured by accounting-based ratios (return on assets, return on equity and earning per share) as well as market-based measure (Tobin’s Q) among listed Ghanaian companies from 2006 to 2018. These mechanisms are: board composition (board size, inside directors and outside directors), board committees (audit, remuneration and nomination), chief executive officer (CEO) duality/separation, board meetings and shareholder concentration.

Design/methodology/approach

The study used panel regression analysis of data from 38 listed firms in Ghana from 2006 to 2018 to test how each corporate governance variable initiated by the SEC of Ghana contributed to firm performance. Data were extracted from the annual reports of listed companies.

Findings

The study found that the presence of both insiders and outsiders on the corporate board improved financial performance. Similarly, board size, frequency of board meetings and shareholder concentration/ownership structure generally had a positive impact on financial performance. However, the presence of board committees generally had a negative impact on financial performance while CEO duality had no impact on financial performance.

Practical implications

The study contributes to the understanding of how good corporate governance practices affect firm performance for both academics and particularly Ghanaian policymakers.

Originality/value

This study provided new findings to bridge the gaps in the general corporate governance literature relative to the lack of consensus on financial impacts of corporate governance mechanisms. The finding contributes to knowledge by providing new and original evidence that some current corporate governance mechanisms are not effective in minimizing the agency problem in a developing setting. Furthermore, the authors anticipate that the outcomes of this research, which so far is the most comprehensive study in the Ghanaian context in terms of the coverage of corporate governance mechanisms specified by the SEC of Ghana, can significantly shape corporate governance discourse, practices and policies in Ghana, particularly and in other developing countries generally to improve financial performance and corporate sustainability.

Details

International Journal of Law and Management, vol. 62 no. 2
Type: Research Article
ISSN: 1754-243X

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Article
Publication date: 17 July 2020

David Adeabah and Charles Andoh

The study examines the relationship between the consequential social cost of market power (i.e. welfare performance of banks) and cost efficiency using data covering the…

Abstract

Purpose

The study examines the relationship between the consequential social cost of market power (i.e. welfare performance of banks) and cost efficiency using data covering the period 2009 to 2017 from the Ghanaian banking industry.

Design/methodology/approach

The study adopts the ordinary least squares (OLS), fixed effect (FE) panel regression and the quantile regression (QR) approaches to control for heterogeneity and provide increased room for policy relevance. The two-stage least squares instrumental variables (2SLS-IV) regression is used to ensure the robustness of the findings against the problem of possible reverse causality.

Findings

The results indicate a positive relationship between banks' welfare performance and cost efficiency, which suggests that greater cost efficiency hedges welfare losses. In other words, welfare gains and cost-efficient banks are not mutually exclusive. Also, the results show evidence that the sensitivity of welfare gain to cost efficiency depends on the knowledge of local market dynamics. Further, the findings from the QR estimation suggest that, but for welfare loss at low (Q.25) to the median (Q.50) quantiles, cost efficiency is a necessary and sufficient condition to hedge the welfare losses.

Practical implications

The results demonstrate that financial consumer protection cannot be achieved without cost efficiency in the presence of both foreign banks and high market knowledge. Therefore, our paper suggests an integrated cost efficiency policy approach that has the complementary effect of a robust information sharing mechanism and incentives to hedge against welfare losses in the banking sector of emerging economies. Moreover, if welfare gain is synonymous with cost-efficient banks, then the presence of a quiet life is typical of financial consumer protection.

Originality/value

This study provides insight into the importance of cost efficiency to the public policy of financial consumer protection in an era of foreign banks' dominance. From the review of prior literature, this paper is the first to apply the QR estimation technique to examine the effect of cost efficiency throughout the conditional distribution of bank welfare performance rather than just the conditional mean effect of cost efficiency.

Details

International Journal of Managerial Finance, vol. 16 no. 5
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 1 April 2014

Anthony Adu-Asare Idun and Anthony Q.Q. Aboagye

This paper takes the finance-growth nexus further by looking at the relationship between bank competition, financial innovations and economic growth in Ghana. The purpose…

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1680

Abstract

Purpose

This paper takes the finance-growth nexus further by looking at the relationship between bank competition, financial innovations and economic growth in Ghana. The purpose of this paper is to find the causality among bank competition, financial innovations and economic growth in Ghana.

Design/methodology/approach

The relationship between bank competition, financial innovations and economic growth was established through the framework of the endogenous growth model. In addition, the paper employed the bound testing ARDL cointegration procedures to enable us to establish both short-run and long-run relationship between bank competition, financial innovations and economic growth. Granger causality test were also estimated to determine the direction of causality.

Findings

The results showed that, in the long run, bank competition is positively related to economic growth while financial innovation is negatively related to economic growth. In the short run, bank competition is negatively related to economic growth. By the same token, financial innovation is positively related to economic growth in the short run. In terms of causality, the results showed that there is unidirectional Granger causality from bank competition to economic growth. However, there is bidirectional Granger causality between financial innovation and economic growth.

Practical implications

The study therefore, recommends for more regulations toward a more competitive banking system with more innovative products tailored toward mobilization of savings and investment to growth induced sectors of the economy.

Originality/value

This paper provides a time series perspective to the finance-growth nexus and highlights the potential contribution of effective banking development to the economic welfare of the Ghanaian citizens.

Details

African Journal of Economic and Management Studies, vol. 5 no. 1
Type: Research Article
ISSN: 2040-0705

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Article
Publication date: 27 November 2019

Emmanuel Sarpong-Kumankoma, Joshua Abor, Anthony Quame Q. Aboagye and Mohammed Amidu

This paper examines the effect of financial (banking) freedom and market power on bank net interest margins (NIM).

Abstract

Purpose

This paper examines the effect of financial (banking) freedom and market power on bank net interest margins (NIM).

Design/methodology/approach

The study uses data from 11 sub-Saharan African countries over the period, 2006-2012, and the system generalized method of moments to assess how financial freedom affects the relationship between market power and bank NIM.

Findings

The authors find that both financial freedom and market power have positive relationships with bank NIM. However, there is some indication that the impact of market power on bank margins is sensitive to the level of financial freedom prevailing in an economy. It appears that as competition intensifies, margins of banks in freer countries are likely to reduce faster than those in areas with more restrictions.

Practical implications

Competition policies could be guided by the insight on how financial freedom moderates the effect of market power on bank margins.

Originality/value

This study provides new empirical evidence on how the level of financial freedom affects bank margins and the market power-bank margins relationship.

Details

Journal of Financial Regulation and Compliance, vol. 28 no. 2
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 9 August 2011

Godfred A. Bokpin, Zangina Isshaq and Francis Aboagye‐Otchere

The purpose of this paper is to examine the impact of ownership structure and corporate governance on corporate liquidity policy from a developing country perspective…

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1846

Abstract

Purpose

The purpose of this paper is to examine the impact of ownership structure and corporate governance on corporate liquidity policy from a developing country perspective, Ghana Stock Exchange (GSE).

Design/methodology/approach

The authors adopt multiple regression analysis in estimating the relationship between ownership structure, corporate governance and corporate liquidity policy as well as the impact of corporate governance on insider ownership.

Findings

The authors find that foreign share ownership significantly predicts corporate cash holding on the GSE. The empirical result also portrays positive and statistically significant relationship between board size, financial leverage, firm size, profitability and corporate liquidity holding, and a negative and statistically significant relationship between board composition and corporate liquidity holding. The authors also document positive and statistically significant relationship between the various industry classifications namely manufacturing, distribution and the pharmaceutical industry and corporate cash holdings on the GSE but did not however find significant relationship between corporate governance and insider ownership on the GSE. The authors found positive relationship between Tobin's Q and inside ownership.

Originality/value

The main value of this paper is to analyze the relationship between ownership structure, corporate governance and corporate liquid policy from a developing country perspective.

Details

Journal of Financial Economic Policy, vol. 3 no. 3
Type: Research Article
ISSN: 1757-6385

Keywords

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Article
Publication date: 15 June 2010

Anthony Q. Aboagye and James Otieku

The purpose of this paper is to determine whether in Ghana, corporate governance, outreach to clients, reduced dependence on subsidies and use of modern technology

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3196

Abstract

Purpose

The purpose of this paper is to determine whether in Ghana, corporate governance, outreach to clients, reduced dependence on subsidies and use of modern technology (together called corporate governance plus) are associated with the performance of rural and community banks (RCBs), which are microfinance institutions (MFI), in the context of newly adopted codes of conduct and regulations, ownership rules and quality of management.

Design/methodology/approach

A total of 30 randomly sampled RCBs were categorized into four groups based on analysis of several dimensions of financial performance. Next, RCBs were again categorized into four groups based on their corporate governance plus. A chi‐squared test of independence between the two groupings was performed.

Findings

The authors found no association between RCBs' categories based on corporate governance plus and their categories based on financial performance.

Practical implication

To enhance performance, corporate governance plus must impact financial performance as documented by OECD. Laws and codes of conduct recently designed to guide the conduct of business should be allowed to work. The restriction on individual ownership of RCBs to 30 percent should be relaxed. And RCBs should pay attention to developing the competencies of their boards and senior management.

Originality/value

This is the first formal test of the association between state of corporate governance plus and financial performance of microfinance institutions in Ghana.

Details

Corporate Governance: The international journal of business in society, vol. 10 no. 3
Type: Research Article
ISSN: 1472-0701

Keywords

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Book part
Publication date: 4 December 2012

Emmanuel Mensah, Joshua Abor, A.Q.Q. Aboagye and Charles K.D. Adjasi

Purpose – The purpose of this paper is to examine the relationship between banking sector efficiency and economic growth in Africa.Methodology/approach – The paper used…

Abstract

Purpose – The purpose of this paper is to examine the relationship between banking sector efficiency and economic growth in Africa.

Methodology/approach – The paper used the stochastic frontier approach stating the banking sector cost function as a Fourier flexible to estimate bank efficiency. We then used the Arellano–Bond GMM estimator to investigate the relationship between banking sector efficiency and economic growth. Annual data for banking sector financial statements were used in estimating efficiency scores.

Findings – The study found banking sector efficiency in the sample to be 69%. We also found a positive relationship between banking sector efficiency and economic growth, confirming the critical role banks play in the economy.

Practical implications – Banking sector efficiency score of 69% implies banks in Africa could save up to 31% of their total cost if they were to operate efficiently. Policy direction should therefore focus on policies and incentives that will improve the efficiency of the banking sector and hence economic growth. The study brings to the fore the importance of the qualitative aspect of the banking sector in allocating financial resources in the real economy. Focus in the real economy should not be only on the size of the banking system but also on the quality with which resources are allocated.

Originality/value of paper – This study is among the first dedicated solely to African countries. It does set the pace for future research in the area and also confirms in Africa the Schumpeterian hypothesis that the banking sector is key in allocating resources in the real economy.

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Article
Publication date: 5 October 2015

Tamer Mohamed Shahwan

This paper aims to empirically examine the quality of corporate governance (CG) practices in Egyptian-listed companies and their impact on firm performance and financial…

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9000

Abstract

Purpose

This paper aims to empirically examine the quality of corporate governance (CG) practices in Egyptian-listed companies and their impact on firm performance and financial distress in the context of an emerging market such as that of Egypt.

Design/methodology/approach

To assess the level of CG practices at a given firm, the current study constructs a corporate governance index (CGI) which consists of four dimensions: disclosure and transparency, composition of the board of directors, shareholders’ rights and investor relations and ownership and control structure. Based on a sample of 86 non-financial firms listed on the Egyptian Exchange, the effects of CG on performance and financial distress are assessed. Tobin’s Q is used to assess corporate performance. At the same time, the Altman Z-score is used as a financial distress indicator, as it measures financial distress inversely. The bigger the Z-score, the smaller the risk of financial distress.

Findings

The overall score of the CGI, on average, suggests that the quality of CG practices within Egyptian-listed firms is relatively low. The results do not support the positive association between CG practices and financial performance. In addition, there is an insignificant negative relationship between CG practices and the likelihood of financial distress. The current study also provides evidence that firm-specific characteristics could be useful as a first-pass screen in determining firm performance and the likelihood of financial distress.

Research limitations/implications

The sample size and time frame of our analysis are relatively small; some caution would be needed before generalizing the results to the entire population.

Practical implications

The findings may be of interest to those academic researchers, practitioners and regulators who are interested in discovering the quality of CG practices in a developing market such as that of Egypt and its impact on financial performance and financial distress.

Originality/value

This paper extends the existing literature, in the Egyptian context in particular, by examining firm performance and the risk of financial distress in relation to the level of CG mechanisms adopted.

Details

Corporate Governance, vol. 15 no. 5
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 4 April 2016

Josephine Darko, Zakaria Ali Aribi and Godfrey C. Uzonwanne

The purpose of this paper is to examine the relationship between corporate governance and firm performance of listed Ghanaian companies.

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4109

Abstract

Purpose

The purpose of this paper is to examine the relationship between corporate governance and firm performance of listed Ghanaian companies.

Design/methodology/approach

The paper adopts a longitudinal and cross-sectional data set of 20 sampled companies over a period of five years. The data were analyzed using a panel regression and ANOVA analysis to establish the relationship between corporate governance and firm performance. Corporate governance is defined in terms of three indices – board structure, ownership structure and corporate control, while firm performance is measured by return on assets, return on equity, net profit margin and Tobin’s Q.

Findings

The empirical results show that ownership concentration and female representation on board have a positive impact on performance. Although the results revealed no evidence to support the impact of board size and audit committee size on performance, there is significant evidence to support the fact that independent directors and audit committee frequency both adversely affect firm performance.

Research limitations/implications

The scope of this paper can be expanded to include non-listed firms. In addition, other corporate governance mechanisms could be considered to broaden the scope of the paper.

Originality/value

This paper contributes to the scarce literature on corporate governance and firm performance in developing countries, especially in sub-Saharan Africa. The paper provides useful information that is of great value to policymakers, academics and other stakeholders.

Details

Corporate Governance, vol. 16 no. 2
Type: Research Article
ISSN: 1472-0701

Keywords

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