Abstract
Corporate governance crises that occur in the banking sector normally cripple economies and bring many hardships to individuals, corporate entities, communities, and the nation at large. In this study, we sought to examine the level of technical efficiency and productivity growth of rural and community banks (RCBs) and the impact of corporate governance indicators on the RCBs' efficiency performance in Ghana. A sample of 70 out of 140 RCBs was selected based on the ARB Apex Bank's performance ratings and data availability. Data envelopment analysis (DEA) was used to determine the technical efficiency scores of the selected RCBs. In the second stage of the analysis, these computed efficiency scores were regressed on the corporate governance variables to assess the effects of the latter. The findings from the DEA approach show that 11% to 20% of the sampled RCBs in Ghana operate close to the efficiency frontier, whereas the majority - about 65% to 81% - underperformed within the study period of 2007 to 2013. The study further established that the number of board members, frequency of board meetings, and corporate social responsibility have significant influence on RCB efficiency.
Highlights
Good corporate governance is increasingly acknowledged as a significant driver of long-term investment and has become a crucial subject in financial circles
The purpose of this paper is to examine the effects of several attributes of corporate governance, in particular, size of the board of directors and audit committee, frequency of board meetings, and corporate social responsibility, on the efficiency of rural and community banks (RCBs) in Ghana
RCBs in Ghana have recently moved in the direction of adopting corporate governance best practices in order to boost efficiency in their operations
Summary
Good corporate governance is increasingly acknowledged as a significant driver of long-term investment and has become a crucial subject in financial circles. Such governance has become necessary for any organization serious about optimizing its performance. The literature on this subject contains evidence of a positive correlation between the level of corporate governance and bank crises. Bank crises are argued to be a long-term result of a series of bad corporate decisions. In July 2018, the Bank of Ghana cited corporate governance practices as the underlying factor for the collapse of seven commercial banks in Ghana between 2016 and 2018
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