Abstract
This study examines the dynamic and simultaneous interaction between corporate governance and financial performance nexus using secondary data from 29 firms listed on the Ghana Stock Exchange (GSE) from 2010 to 2021. A corporate governance index (CGI) was calculated using an unweighted dichotomous response technique based on 144 self-administered survey questions guided mainly by the Securities and Exchange Commission (SEC) code(s) of governance, while Return on Asset (a proxy for FP) was calculated by dividing Profit After Tax (PAT) by the total assets of the sampled firms over time. The Panel VAR estimation technique recommended by Abrigo and Love (2016) was used to empirically study the causality and simultaneous interaction between these two variables within the framework of bidirectional optimality theory. The findings provide a new evidence by demonstrating a positive and significant bidirectional nexus between CG and FP, confirming the bidirectional theory on the basis of lag one structure of the PVAR model. Thus, shareholders and other stakeholders seeking a better return on their investments would equally expect a competent and effective corporate governance system to protect their investment and interests in Ghana. The results of the forecast error variance decomposition analysis support the selection of corporate governance as the most endogenous variable. This study however, remains limited to Ghana and may not apply to other contexts.
Published Version
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