Corporate governance: the impact of director and board structure, ownership structure and corporate control on the performance of listed companies on the Ghana stock exchange

• DOI: https://doi.org/10.1108/CG-11-2014-0133
• Pages: 259-277
• Date: 04 April 2016
• Published date: 04 April 2016
• Author: Josephine Darko,Zakaria Ali Aribi,Godfrey C. Uzonwanne
• Subject Matter: Strategy,Corporate governance

Corporate governance: the impact of

director and board structure, ownership

structure and corporate control on the

performance of listed companies on the

Ghana stock exchange

Josephine Darko, Zakaria Ali Aribi and Godfrey C. Uzonwanne

Josephine Darko is

based at Access Bank,

Accra, Ghana.

Zakaria Ali Aribi is

Lecturer at the

Department of

Accounting and Finance,

University of Central

Lancashire, Preston, UK.

Godfrey C. Uzonwanne is

based at the University of

Chester, Chester, UK.

Abstract

Purpose –The purpose of this paper is to examine the relationship between corporate governance and

firm performance of listed Ghanaian companies.

Design/methodology/approach –The paper adopts a longitudinal and cross-sectional data set of 20

sampled companies over a period of five years. The data were analyzed using a panel regression and

ANOVA analysis to establish the relationship between corporate governance and firm performance.

Corporate governance is defined in terms of three indices – board structure, ownership structure and

corporate control, while firm performance is measured by return on assets, return on equity, net profit

margin and Tobin’s Q.

Findings –The empirical results show that ownership concentration and female representation on

board have a positive impact on performance. Although the results revealed no evidence to support the

impact of board size and audit committee size on performance, there is significant evidence to support

the fact that independent directors and audit committee frequency both adversely affect firm

performance.

Research limitations/implications –The scope of this paper can be expanded to include non-listed

firms. In addition, other corporate governance mechanisms could be considered to broaden the scope

of the paper.

Originality/value –This paper contributes to the scarce literature on corporate governance and firm

performance in developing countries, especially in sub-Saharan Africa. The paper provides useful

information that is of great value to policymakers, academics and other stakeholders.

Keywords Ghana, Corporate governance, Financial performance

Paper type Research paper

Introduction

It is evident that good corporate governance provides the ability to improve competitive

advantage, efficiency and effectiveness of companies (Maher and Andersson, 2000). As a

result, stakeholders have begun to realize the importance of good corporate governance

practices in protecting their interests. The empirical work on corporate governance and its

impact on firm performance has grown remarkably in recent years, especially in developing

countries. There is little research that has looked at corporate governance in developing

countries such as Ghana. Previous studies also provide mixed findings on the directions of

causality between corporate governance and firm performance. In this context, this paper

attempts to examine the relationship between corporate governance and firm performance

in Ghana. The Ghanaian business environment is characterized by a good level of growth,

and further growth is expected because of the recent discovery of oil in the country. This

Received 14 November 2014

Revised 21 November 2015

Accepted 26 November 2015

DOI 10.1108/CG-11-2014-0133 VOL. 16 NO. 2 2016, pp. 259-277, © Emerald Group Publishing Limited, ISSN 1472-0701 CORPORATE GOVERNANCE PAGE 259

has resulted in the increased awareness of the effects of corporate governance on the

performance of firms in Ghana. The study adopts a longitudinal and cross-sectional data

set of 20 sampled companies over a period of five years. Our findings are useful for the

policy community who are concerned with the impact of governance structure on corporate

disclosure.

The remainder of the paper is structured as follows. The second section provides an

overview of prior literature, which explores the relationship between corporate governance

and firm performance, and the development of hypothesis. The third section presents our

research design. The main results are discussed in the fourth section, and we provide a

summary of our results and conclusion in the last section.

Background of Ghana

Ghana is a developing country located in the West African Sub region and is categorized

among countries often faced with poor economic performance, weak legal and regulatory

frameworks, illiquid stock markets and very frequent market intervention by government

agencies (Tsamenyi et al., 2007). These structural characteristics have led to the demand

for good corporate governance in Ghana and similar countries (Ahunwan, 2002). Ghana

does not have a specific corporate governance code such as the UK (principles based)

and the USA (rules based) (Abor, 2007;Aboagye and Otieku, 2010). This means that

companies tend to operate on a different set of corporate governance guidelines

(Koranteng et al., 2004). Nonetheless, the Ghana Stock Exchange and the Security

Exchange Commission serve as the primary regulators of all listed companies, ensuring

that all listing requirements and regulations are adhered to while also ensuring that these

companies adhere to good corporate governance measures. In this regard, an emphasis

must be placed on the effects that good corporate governance has on firm performance to

help improve the effectiveness and efficiency of listed firms.

Corporate governance and firm performance

The Organisation of Economic Co-operation and Development (1999) (OECD) defines

corporate governance as the mechanism or the system by which businesses and

organizations are directed and controlled. The OECD (1999) indicates that the adoption of

good corporate practices has the ability to increase and restore shareholder confidence as

well as economic efficiency and growth (OECD, 2004). According to Sheikh (1995), the

concept of corporate governance is grounded mainly in the accountability of directors to

shareholders in lieu of their responsibilities in ensuring wealth maximization. Corporate

governance is a set of mechanisms that aims to direct managerial decisions and helps

improve the firms’ performance (Jarboui et al., 2015), while Vintila and Gherghina (2012)

emphasized the fact that corporate governance mechanisms have the ability to mitigate the

agency problem by aligning the interests of managers and directors with those of the

shareholders. A number of previous studies investigated the role of governance

mechanisms in resolving conflicts of interest between shareholder and managers and in

improving performance (Cubbin and Leech, 1983;Aydin et al., 2007). However, the

findings of these empirical studies are contradictory and inconclusive. The indecisive

nature of the literature as it relates to whether there is any relationship existing between the

firm performance and corporate governance is been operated as calls for this paper.

Board of directors

The key role of the board of directors is to monitor management decisions. Cadbury report

(1992) identifies the board of directors’ responsibilities as setting the company’s strategic

aims, providing the leadership to put them into effect, supervising the management of the

business and reporting to shareholders on their stewardship. Boards of directors are

typically measured by two characteristics: board composition and board size (BS); with

either characteristic, there is a trade-off between more information and more effective

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