Corporate Governance and Banking Stability: The Case of Universal Banks in Ghana

Abstract

Purpose: Many countries both develop and developing have issues concerning corporate governance mechanisms, policy, and implementations and there needs to be addressed by researchers and academics. Our study seeks to investigate whether bank stability and corporate governance variables have a robust linkage. Methodology: A country sampling of 23 commercial banks’ data from 2008–2019 was used for our analysis. We employed a fixed effect estimator and generalized method of moments (GMM) estimation. Findings: Using the fixed-effect approach, we declare that board size, ages of board members, the financial experience of board members, and CEO duality have a strong positive effect on bank stability measures. We find evidence these corporate governance variables help decrease bank's risk/insolvency. Next, we found out that, percentage of female directors, audit committee activities, and directors' educational composition/qualification have reversed rather than encouraged risk in banks. For the generalized method of moments setting, we discovered that board size has a mixed effect on banks' stability. The audit committee has a negative effect on banks' stability for only the tier 1 capital. Educational qualification and directors' compensation is negatively related to the bank's credit risk measure only. The ages' of directors (average age) is strongly related to the bank's stability measures. However, the percentage of independent directors' on the board is linked to Zscore only, while the financial experience of directors and the percentage of female directors are connected to credit risk measures only while CEO duality has a great linkage with both credit risk and tier 1 capital. Practical Implications: The result indicates that banks still need to strengthen their corporate governance structures, which will help them stay strong and solvent. Originality/Value: This is crucial in understanding how governance works at the banks level and how it helps in preventing financial instability.