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University of Ghana

Business School

RESEARCH PROPOSAL

An assessment of the impact of Corporate Governance on bank


performance: evidence from Ghana.

By
WMBA Group 6

May, 2016

Names and ID of Group Members

David Adeabah

10551139

Gifty Apaw- Agyei

10551278

Emmanuel Arthur

10551344

Derrick Kafui Mensah

10550925

George Joe Arthur

10550669

Desmond Ampah Asiedu

10551149

Frank Aklamanu

10245347

Agnes A. Kotoku

10233439

Cynthia Quaye

10552214

Richard Ayi

10251304

Samuel Kyeremeh

10551287

Table of Content
Table of Content .............................................................................................................................. i
List of Figures ................................................................................................................................. ii
Abbreviations................................................................................................................................. iii
1.0

Introduction.......................................................................................................................... 1

1.1

Research Background....................................................................................................... 1

1.2

Research Problem............................................................................................................. 2

1.3

Research Purpose ............................................................................................................. 3

2.0

Research Objectives............................................................................................................. 4

3.0

Research Questions.............................................................................................................. 4

4.0

Literature Review................................................................................................................. 4

4.1

Disclosures ....................................................................................................................... 5

4.2

Transparency .................................................................................................................... 5

4.3

Trust ................................................................................................................................. 6

4.3

CEO Duality..................................................................................................................... 6

5.0

Proposed Research Methodology ........................................................................................ 7

5.1

Sampling And Sample Size.............................................................................................. 7

5.2

Data Collection Instruments............................................................................................. 8

5.2.1

Primary And Secondary Data Collection.................................................................. 8

5.2.2

Data Analysis ............................................................................................................ 8

6.0

Significance Of The Research ............................................................................................. 9

7.0

Research Limitations And Delimitations............................................................................. 9

8.0

Project Schedule................................................................................................................. 10

9.0

Chapter Outline.................................................................................................................. 11

References..................................................................................................................................... 12

List of Figures

Figure 1: Counts of CG variables used in Ghana5

ii

Abbreviations
CG

Corporate Governance

CEO -

Chief Executive Officer

GSE

Ghana Stock Exchange

SEC

Securities and Exchange Commision

BOG -

Bank of Ghana

GRA -

Ghana Revenue Authority

DV

Dependent Variable

IV

Independent Variable

iii

1.0 Introduction
1.1

Research Background

Since 2001, corporate governance (CG) has received renewed interest internationally due to high
profile corporate collapses. Enron and WorldCom of the US among others are examples of
prominent corporate failures. Bank failures of recent times around the world are no exception to
the reasons of heightened concerns among stakeholders about the efficacy of the existing CG
practices to ensure transparency and accountability (Gill & Mathur, 2011). One thing that is clear
from all these happenings is that a modern market economy is reliant upon an efficient and stable
banking sector with resilient corporate governance practices (Ross & Crossan, 2012). This eyeopener is what Bokpin (2013) agrees to and supports the call for effective governance practices
of banks in developing countries. So why should banks in developing economies take corporate
governance seriously?
According to Nyamongo & Temesgen (2013) corporate governance of banks in developing
countries is important for several reasons including: (1) Banks have an overwhelmingly
dominant position in developing economies financial systems, and are extremely important
engines of growth. (2) As financial markets are usually under developed, banks in developing
economies are typically the most important source of finance for the majority of firms. (3) Banks
in developing countries play a major role in the payment system and are the main depository for
the economys savings. (4) Liberalization of the financial sector giving much freedom to
managers of banks on how they run their banks. These reasons are no different in Ghana and as a
result the banking industry in Ghana has witnessed some regulatory developments in a bid to
strengthen the whole regulatory environment (Ross & Crossan, 2012). Despite the growing
number of regulations introduced in the banking industry in Ghana, Bokpin (2013) noted that
there is the need to ascertain the corporate governance practices of banks in Ghana.
The corporate governance practices are grouped into internal and external (Bushman & Smith,
2001; Cremers & Nasir, 2005; cited in: Dalwai, Basiruddin & Rashid, 2015). The internal
mechanisms include: ownership structure, board of directors, board independence, CEO duality,
executive compensation, audit committees and financial disclosures. The external mechanisms
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include: market for corporate control, managerial labour market, proxy fights, product market
competition and legal infrastructure (Dalwai et al., 2015). Recently, other CG variables
elsewhere have included board gender diversity (Hassan, 2015).

1.2

Research Problem

Though extensive research and numerous scholarly articles and journals have been written on the
issue of CEO duality, most of these studies have concentrated on developed economies; there is
only a handful in developing economies, particularly Sub-Saharan Africa. Out of the 10
scholarly articles reviewed on the subject of corporate governance in Ghana between 2006 and
2013, the study of CEO duality is sparse, appearing on only 3 research papers (Abor & Biekpe,
2007; Abor, 2007; Bokpin, 2011). (See Figure 1) Hence, there is the need to provide additional
insight into the impact CEO duality on bank performance in Ghana.
Figure 1: Counts of CG variables used in Ghana
Counts of CG variables used in Ghana
6
5
4
3
2
1
0

Source: collated from 10 research papers on the topic of corporate governance in Ghana between 2006 and 2013.

Although Abor & Biekpe (2007), Abor (2007) and Bokpin (2011) discuss CEO duality, the
papers present a context gap. For instance, Abor (2007) focuses only on listed firms in Ghana.
2

Similarly, Bokpin (2011) also limits the discussion to firms on the Ghana Stock Exchange
(GSE). From the review, these studies did not involve all commercial banks in Ghana.
Therefore, further empirical study is crucial to provide an in-depth insight into the relationship
between CEO duality and bank performance.
Moreover; from the survey of literature shown in figure 1 above, we pick three additional tenets
of CG; Transparency, Disclosure and Trust and assess their impact on bank performance as the
studies in the literature did not primarily focus on banks. These variables of corporate
governance are selected because of their importance, particularly to bank performance (Basel
Committee, 2006; Walker, 2009).
Hence, we identify two main research gaps: first, the limited use of CEO duality, transparency,
disclosure, and trust in the study of corporate governance, and second, some gaps in the
relationship between corporate governance and bank performance.
In view of this; first, this study seeks to extend the analysis to consider CEO duality,
transparency, disclosure and trust; as addition to the existing corporate governance variables in
the literature and to understand the impact of corporate governance on bank performance in
Ghana. Second, a bi-directional causality of corporate governance and bank performance is
investigated to identify the potential predictors of CG and bank performance.

1.3

Research Purpose

The study seeks to understand the impact of corporate governance and examine a bi-directional
causality of corporate governance and bank performance in Ghana as at December 31, 2015 both
listed and unlisted on the Ghana Stock Exchange (GSE) during the ten year period (2006
2015).

2.0 Research Objectives


The study aims to examine:
1. Whether there is a relationship between CEO duality, transparency, disclosure, trust and
bank performance in Ghana.
2. The potentials predictors of corporate governance and bank performance in Ghana.

3.0 Research Questions


In order to achieve the research objectives, the following questions will be asked:
1. Is there a relationship between CEO duality, transparency, disclosure, trust and bank
performance in Ghana?
2. What are the potential predictors of corporate governance and bank performance in
Ghana?

4.0 Literature Review


The subject of corporate governance in academia and professional setting in the Ghanaian
context has actually gathered momentum. An advanced search on research database Emerald
for the key words Corporate Governance and Ghana produced a result as follow: 42 counts
of corporate governance and 66 counts of Ghana on 28 April, 2016, at 11:52 pm for the period
2006 and 2016. This rising academic interest in corporate governance has been in part triggered
by corporate scandals, public outcry on lavish executive compensation (Dorff, 2014), and
perceived irresponsibility of some big banks and corporations in recent years. Nonetheless, there
are some enduring reasons why corporate governance has attracted substantial interest in diverse
academic fields. Corporate governance plays a fundamental role in allocating resources and
responsibilities within and across firms, thereby affecting strategic choices as well as value
creation and distribution within individual organizations, alliances, and even across countries. As
such, understanding the behavioral and strategic choices and the ultimate performance of
organizations, alliances, and countries requires an intimate knowledge of the governance
dimensions involved.
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Moreover, corporate governance is socially constructed in terms of how it is perceived and


legitimately accepted, which in turn reflects and influences the institutional logics1 embedded in
corporate goals and controls (Aguilera et al., 2015).As these norms and beliefs of what
acceptable corporate behavior is often differ widely across industries, countries, and regions, and
they tend to evolve over time, so do the notion and practices of corporate governance. Thus, the
study of norms and practices on corporate governance at a given period of time in a country
often entails more than addressing questions on corporate governance from purely economic and
legal perspectives, and necessitates instead a broader attention to societal norms, cultural
attributes, and ethical values. We will now discuss the various tenets of corporate governance for
this study.

4.1

Disclosures

According to Ahmed & Karim (2005) a disclosure can be defined by as the presentation of an item of
information in the annual reports of a company. Good corporate goverance practices is enhanced and
facilitated as a result of the pivotal role of disclosure of information. A review of the literature revealed
that between 2009 and 2012 Ghanaian listed banks were not overwhelmingly enthused about the 2002
Security Exchange Commission (SEC) Code of best practices, therefore some banks partially complied
with it (Adegbite, 2012). This is partly blamed on local ownership structure of the banks. However,
foreign banks fully comply with the SEC 2002 Code of best practices.

As a common law nation, the UK combined code of corporate governance and siclosures somewhat
influences our corporate governance code and disclosure. This comes to light when comparison is made
of the wordings of CG disclosure in the annual reports of companies on the GSE and FTSE100.
(Adegbite, 2012). However, with the seemingly strong legal regime governing CG in Ghana, the
provisions of the Code have seen very little enforcement (Oertal, 2004; cited in: Adegbite, 2012) partly
due to corruption (Mensah, Aboagye, Addo & Buatsi, 2003).

4.2

Transparency

Corporate transparency has been defined by Bushman and Smith (2003) as the widespread
availability of relevant, reliable information about the governance, value and risk of publicly
traded firms. Given that banks operations are branded as opaque (Mlber, 2009), transparency
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on CG may be used as a valuable and active tool to reduce infromation asymmetry; thus
lowering the uncertainties accompanied with investment decisions (Stiglbauer, 2010).
According to Stiglbauer (2010), signals of quality in management and control is enhanced and
facilitated by transparency on CG. Similarly, as Ghana shows deficiency in enforcement of the
provisions of corporate governance code (Adegbite, 2012), companies should see CG as valuable
in gaining competitive advantage (Bhat, Hope & Kang 2006). Also, Bhat et al. (2006) argue that
transparency on corporate governance may substitute financial disclosure and increase analysts
accuracy. Therefore, there is the need for banks to up their game in transparency on corporate
governance.

4.3

Trust

The honest and efficient running of firms underscores corporate governance. Trust embedded
corporate governance in needed to soar the lelves of trust in companies and business leaders
(Groom, 2003). Generally, the breach of trust with stakeholders amidst the revealations
proceeding the financial scandals is considered a failure of corporate governance. Turst in
corporate governance underpins a firms ability to compete profitably and return maximized
value to shareholders (Child & Rodrigues, 2004). Also, Child & Rodrigues (2004) assert that
goodwill is dependent on plocies that earn trust which take a long time. However, following a
breach of trust, this is quickly destroyed because of fear. This assertion is true given the recent
fear the engulfed depositors of the defaunt DKM Microfinance in Ghana. Therefore, given the
eroding of stakeholders trust in business leaders, it is crucial to ask what remedies could be
adopted to surge the damge. Notably, it is clear that any kind of negative action that seeks to
abuse corporate power unilaterally at the expense of other stakeholders must be avoided.

4.3

CEO Duality

CEO duality refers to the situation when the CEO also holds the position of the chairman of the
board. The board of directors is set up to monitor managers such as the CEO on behalf of the
shareholders. Hence, CEO duality can be said to be counterintuitive to the tenets of agency
theory (Solomon, 2007; Berle & Means, 2009; cited in: Weiss, 2012) if the role of the board of
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directors is to truly monitor the CEO and other agents, as characterized by Elsayed (2007)
(Weiss, 2012). The inherent conflict of interest between the agents and principals can easily be
exacerbated by the lack of oversight when so much power is vested in one person, thus
compromising the independence of the board (Keasey, Thompson, & Wright, 2005; cited in:
Weiss, 2012).
The relationship between CEO duality and corporate governance has been addressed from
different perspectives on the global devastation of the CEO duality impact on the performance of
both financial / enterprise value or the mechanism of corporate governance and the impact of
corporate governance and corporate financial performance on CEO duality. However, there is
mixed conclusion: ranging from insignificant, positve or negative. These findings have increase
the level of justification for the inconsistency from the various authors. Therefore, there is the
need fro empirical research to support or disprove the various findings.

5.0 Proposed Research Methodology


In order to achieve the aims of this study, a range of data collection tools and data analysis
techniques will be used. We will conduct a cross sectional and correlational investigations; given
that the key focus is to investigate the relationship between CG and bank financial performance.
A multiple regression technique will also be employed to determine the potential predictors of
CG and bank financial performance.
The target population will include depositors (account holders) in commercial banks in Ghana.
Officials of Bank of Ghana ((BOG) supervision department, Staff of Ghana Revenue Authority
(GRA) and staff of the Big Four audit firm (PwC, KPMG, Ernst & Young , Delliote & Touche)
will be included in the target population.

5.1

Sampling And Sample Size

12 commercial banks classified as Class 1 Type banks will be selected. Selection will be based
on the number of account holders as provided by BOG. Six commercial banks with the highest
number of account holders 3 international and 3 local, and six commercial banks with the
lowest number of account holders 3 international and 3 local. These 12 banks will represent a
balanced position for the commercial banks in Ghana.
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In relation to sample size, Roscoes (1975) rule of thumb suggests that a sample size of 30 500
is appropriate for most studies. Nevertheless, we will specifically adopt Krejcie and Morgan
(1970) simplified Table in Sekaran (2000) and a sample size of 400 will be selected.
Moreover, given the sensitive and confidential nature of the information, the names of the
respective commercial banks will be shown as follows:
1. Large / International (X)
2. Large / Local (Y)
3. Small / International (Z)
4. Small / Local (N)
Using judgmental sampling, account holders that are literate, approachable and ready to provide
data will be selected. Respondents will be screened to those who have used bank services for at
least one year to ensure thorough data collection. Data will be collected from both commercial
banks. 25 BOG officials in charge of bank supervision, 25 GRA staff in charge of bank audit,
and 20 staff of the Big Four audit firms in charge of bank audit will also be considered to
enhance the reliability of the responses.

5.2

Data Collection Instruments

Self-administered questionnaires will be used. Perceptions and belief will be sought to a five
point Likert scale, five being the highest (Tull and Hawkins, 1993).
5.2.1 Primary And Secondary Data Collection
Primary and secondary data will be collected; primary data from the respondents mentioned
earlier, secondary data will be mainly annual reports and will be sourced from BOG library.
5.2.2 Data Analysis
The data will be analyzed using the descriptive analysis option of R. Thereafter, Pearson
Correlation Statistical Techniques will be used to test and establish whether exits a relationship
between CEO duality, transparency, disclosure, trust and financial performance while a multiple
regression analysis will be used to test the potential predictors of CG and bank performance.
The dependent variable (DV) will be converted to interval data in five-scale in order to correlate
it with the independent variable (IV) that will be ranked on a five point Likert scale. Likert scale
8

will be scored as though we were assuming a legitimate interval data; this is in agreement with
Abelson and Turkey (1970).

6.0 Significance Of The Research


The significance of this study can be viewed along the following the areas: research, practice and
policy.
In research significance, the study seeks to provide an insight into corporate governance on the
constructs of CEO duality, transparency, disclosure and trust on bank performance in Ghana.
This is important, because, very little literature exits concerning the relationship between
corporate governance and bank performance.
For practice significance, this study will provide the banking industry in Ghana an idea of the
causes of their financial performance in the light of the CG tenets examined in this study. It will
inform commercial banks on what needed to be embedded in their corporate governance
practices and what to report on in the corporate governance report accompanying the annual
reports.
With respect to policy, the study will provide feedback on what issues of corporate governance
need to be looked at firm- level to benefit stakeholders.

7.0 Research Limitations And Delimitations


The study will focus on only 12 commercial banks classified a Class 1 Type out of the over 30
Class 1 Type commercial banks in Ghana due to data collection and time constraints for the
study. A sample size of 400 will be selected based on literate account holders and those that have
used bank services for at least one year. The study will not cover board size, board independence
and ownership structure as constructs of CG.

8.0 Project Schedule


Chapters
Chapter 1
Meeting with supervisor

Completion Dates
12th January, 2017

Chapter 2
Meeting with supervisor
Revision of previous
chapter

28th January, 2017

Chapter 3
Meeting with supervisor
Submission of corrected
chapter 2

2nd February, 2017

Chapter 4
Meeting with supervisor
Revision of previous
chapter

3rd March, 2017

Chapter 5
Meeting with supervisor
Revision of previous
chapter

15th April, 2017

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9.0 Chapter Outline


This study consists of five chapters. It starts with an introduction followed by literature review,
methodology, data presentation and analysis and finally summary, conclusion and
recommendations.
Chapter one This chapter presents a background of Corporate Governance.
Chapter two This chapter presents related literature.
Chapter three This chapter presents the methodology of the study.
Chapter four - This chapter presents the presentation and analysis of data.
Chapter five This chapter presents the summary, conclusion and recommendations of this
study.

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