Can Sound Corporate Governance Alleviate Corporate Failure? A Study of the Zimbabwean Financial Services Sector

Banele Dlamini,Julius Tapera,Shynet Chivasa

doi:10.22610/jebs.v9i2(j).1652

Banele Dlamini, Julius Tapera + Show 1 more

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https://doi.org/10.22610/jebs.v9i2(j).1652

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Abstract

This study, using the Ordinary Least Squares (OLS) Regression Model, investigated the extent to which good corporate governance practices can minimise or alleviate corporate failure in the Zimbabwean Financial Services Sector. The results of the study reflected that sound corporate governance has a positive effect on corporate success and can alleviate corporate failure. It is thus recommended that financial institutions continuously adhere to sound corporate governance practices to guarantee corporate success and alleviate the collapse of financial institutions as has been witnessed in the past. The findings of the study will assist policy makers, regulators and players in the financial services sector to adhere to sound corporate governance practices, given its impact on corporate success. Further research could be carried out with regards the implementation of sound corporate governance in parastatals, quasi-government institutions and private sector companies in other sectors other that the financial services sector and how it can be monitored or enforced.

Highlights

The Zimbabwean financial services sector was characterized by significant growth at the turn of the 21st century when the Zimbabwean government “liberalized” the sector, relatively relaxing the requirements to allow indigenous player to enter the industry
This paper investigates the extent to which good corporate governance practices can avert or alleviate corporate failure in the Zimbabwean Financial Services Sector.Unlike previous studies (Kumar & Sudesh, 2016; Chidoko and Mashavira, 2014) which focused on comparative analysis of domestic and multinational banks corporate governance practices, this study focuses on the link between corporate performance and sound corporate governance.The study will inform policy and assist the Zimbabwean Financial Services Sector in the reduction of corporate failure in the industry since corporate governance is a critical aspect for the survival and growth of entities and it is a pivotal factor in turning around Zimbabwe’s economy(Mahmud, Ahmed, and Mahajan, 2008)
Conflict of interest was rampant as 40% of the companies had board members who are shareholders of the competitors company which presents a serious case of conflict of interest and this has negatively affected the performance of the financial institutions in Zimbabwe

Summary

Introduction

The Zimbabwean financial services sector was characterized by significant growth at the turn of the 21st century when the Zimbabwean government “liberalized” the sector, relatively relaxing the requirements to allow indigenous player to enter the industry. Even during the multi- currency regime, since 2012 to 2015 the financial services sector continued to suffer a decline with banks such as AfrAsia Bank Zimbabwe Limited, Renaissance Merchant Bank, Interfin Bank, Genesis Investment Bank, Capitol Bank and Royal Bank closing due to poor corporate governance inter alia (Munzwembiri, 2015), Bank failure is not solely a shift in the architecture of the financial service sector but represents lost savings, lost pension funds, causing company closures and job losses.

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