How do Competitive and Regulatory Pressures Interact with Internal Corporate Governance?: Evidence from the Cameroonian Banking Sector

Kamdem David,Kuate Talla Idrice Romã©O

doi:10.24297/ijmit.v9i2.2870

Abstract

The objective of this article is to analyse the impact of both external and internal mechanisms of corporate governance on banks performance in Cameroon. The internal governance mechanisms consist of those linked with the Board of directors (its size and composition) and the ownership structure (ownership concentration, equity capital of each type of shareholder). External mechanisms consist of pressure from competitors, and regulatory pressure from the banking Commission following the adoption of equity principles or rules. Research carried out on a sample of 11 Cameroonian banks showed the effect of complementarity between the control exerted by internal stakeholders (institutional shareholders, insiders ownership, size of the Board of directors) and competitive pressure. On the contrary, a substitution effect was detected between State administrators and competitive pressure. Results obtained also revealed the substitution effect between control exercised by the Board of directors and regulatory pressure.

Highlights

Due to the banking crisis upsetting the world today, and the numerous shortcomings characterising banks management in recent years, a consensus was reached on the necessity to reinforce bank governance
The symbiotic relationship between the government or political circle and banks contributed to the maintenance of lax prudential regulation and poor corporate governance rules, leading to accumulation of non-performing loans, privileged government financing and breakdown of bank-controlled payment systems
We find a continuous upsurge beyond the average of 8.75% over the period. This finding may be related to the fact that banks maintain a high level of capital for reasons such as reputation and the rating value assigned by the Banking Commission[4]

Summary

Introduction

Due to the banking crisis upsetting the world today, and the numerous shortcomings characterising banks management in recent years, a consensus was reached on the necessity to reinforce bank governance. Cameroon has experienced a banking crisis in the middle of the 1980s until the beginning of the 1990s. This banking crisis was the result of poor corporate governance in the Cameroonian’s banking institutions. The symbiotic relationship between the government or political circle and banks contributed to the maintenance of lax prudential regulation and poor corporate governance rules, leading to accumulation of non-performing loans, privileged government financing and breakdown of bank-controlled payment systems. The crisis resulted in a drain of banking bankruptcies. In order to correct these problems, the Cameroonian state and the sub-areas financial institutions restructured the failed banks, adopted new prudential regulation, liberalized the financial sector, and softened monetary policy

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