Does corporate governance structures promote shareholders or stakeholders value maximization? Evidence from African banks

AuthorBaah Aye Kusi, Agyapomaa Gyeke-Dako, Elikplimi Komla Agbloyor, Alexander Bilson Darku
Publication Date03 Apr 2018
Does corporate governance structures
promote shareholders or stakeholders
value maximization? Evidence from
African banks
Baah Aye Kusi, Agyapomaa Gyeke-Dako, Elikplimi Komla Agbloyor and
Alexander Bilson Darku
Purpose The purpose of this paper is to explore the relationship between corporate governance
structures and stakeholder and shareholder valuemaximization perspectives in 267 African banksfrom
2006 to 2011.
Design/methodology/approach The authors used the Prais–Winsten ordinary least squares and
random effect regression models to explore this relationship to ensure consistency and efficiency in
results.The data for this study were collectedfrom Bankscope.
Findings The results of this study show that corporate governance structures such as CEO duality,
nonexecutive members and extreme large board size lead to a reduction in both shareholder and
stakeholder value maximization. However, audit independence and board size also promote both
shareholder and stakeholder value maximization. Although gender diversity promotes profit
maximization, it was not significant in any of the models estimated.The results further suggest that the
same corporate governance structures promote and detract shareholder and stakeholder value
maximization in Africa although the effect of corporate governance structures was weightier on
shareholdervalue maximization confirming the agencytheory.
Practical implications From these findings, bank management must pursue the institution of good
corporate governance structures and avoid weak corporate governance structures to promote
shareholderand stakeholder value maximization.Also equity holders may have to pay particular attention
to corporate governancestructures because they benefit the most from the institutionof good corporate
Originality/value This study explores and compares how corporate governance structures promote
shareholder and stakeholdervalue maximization separately in African banks.To the best of the authors’
knowledge,this is the first of such studies.
Keywords Africa, Corporate governance, Stakeholder theory, Bank profitability, Shareholder theory
Paper type Research paper
1. Introduction
Corporate governance involves a set of relationships between a company’s management,
its board, its shareholders andother stakeholders. Corporate governance also provides the
structure through which the objectives of the company are set and the means through
which those objectives are determined (OECD, 2004; Shleifer and Vishny, 1997). It also
involves monitoring performance of firms. This means that corporate governance has
emerged as a critical mechanism for accelerating firm performance and economic growth
(Aggarwal et al.,2011;Stafsudd, 2009;Jadhav and Katti, 2012;Hasan et al., 2014).
Baah Aye Kusi is PhD
Agyapomaa Gyeke-Dako is
Lecturer and
Elikplimi Komla Agbloyor is
Senior Lecturer, all at the
Department of Finance,
University of Ghana
Business School, Accra,
Alexander Bilson Darku is
Instructor at the
Department of Economics,
University of Lethbridge,
Lethbridge, Canada.
Received 25 August 2016
Revised 5 September 2016
19 January 2017
16 March 2017
11 May 2017
5 June 2017
24 July 2017
29 August 2017
20 September 2017
Accepted 14 October 2017
PAGE 270 jCORPORATE GOVERNANCE jVOL. 18 NO. 2, 2018, PP. 270-288, © EMERALD PUBLISHING LIMITED, ISSN 1472-0701 DOI 10.1108/CG-09-2016-0177
Corporate governance structuresin prior studies are evidently represented as CEO duality,
board size, board gender, audit committee independence and nonexecutive members on
the board. Given the potential of corporate governance promoting economic growth and
firm performance, many studies have explored these benefits associated with it at the
national and firm levels (La Porta et al.,2000;Hasan et al., 2014). Studies including Shleifer
and Wolfenzon (2002),Abdullah (2004) argued that effective or strong corporate
governance structures form a corporate atmosphere that discourages corporate insiders or
managers from pursuing their own value, alleviates the risk of mismanagement or
negligence and hence enhances firm value or performance. In effect, in the presence of
effective corporate governance structures, corporate insiders have a disincentive to pursue
their own opportunistic interest, as these good corporate structures serve as a deterrent or
disciplinary measure that guides the corporate dealings to maximize firm value (Eisenberg
et al., 1998;Epps and Cereola, 2008;Judge et al., 2003). This suggests that some
corporate governance structurespromote firm performance.
Although corporate governance is generally accepted to enhance the firm value, this is
done through two varying perspectives or theories. These two perspectives include the
shareholder perspective and the stakeholder perspective (Abdullah, 2004). While the
shareholder perspective has been the traditional view and of course the more dominant
view, the stakeholder theory only emerged recently. Corporate governance modeling has
closely followed the Anglo-American approach popularly referred to as the shareholder
model (Abdullah, 2004). The proponents of the shareholder perspective argue that
corporate governance structures should focus on the promotion of shareholders’ value
(return on equity [ROE]) because of the separation of management (control) and ownership
(shareholder), as managers may pursue their own interest at the expense of the interest of
shareholders (Keenan, 2004;John and Senbet, 1998;Jensen and Meckling, 1976). The
proponents of the stakeholder perspective on the other hand argue that corporate
governance structures should not focus on promoting the value of only the shareholder but
also on promoting the value of all (shareholders, employees, creditors, tax agencies,
society, government, etc.) who have a stake or interest in a firm. Following this, Aguilera
and Cuervo-Cazurra (2004) posited that corporate governance structures are there to
“encourage efficient and equal use of resources which requires accountability for the
stewardship of these resources”. Thus, its main aim is to align as closely as possible the
interests of individuals, corporationsand the society as a whole.
Given these perspectives to corporate governance, empirical studies have focused more
on the dominant perspective, which is the agency perspective (Mensah and Abor, 2014;
Abdullah, 2004;Keenan, 2004;Singh and Davidson, 2003;John and Senbet, 1998)
neglecting the stakeholder perspective to corporate governance. This is somewhat strange
as good corporate governanceshould not only serve the interest of the shareholder but also
help promote the value of the stakeholder. The literature on corporate governance barely
discusses which corporate governance structures promote or detract shareholder and
stakeholder value maximization goals. Hence, this study takes the advantage of the lack of
empirical studies especiallyin the context of Africa to explore and compare for the first time,
to the best of our knowledge, which corporate governance structures promote shareholder
and stakeholder value maximization in African banks. Given the low level of economic
growth and development in Africa, the importance of this study in African banks cannot be
overemphasized because the banking sector in most African countries are instrumental in
the advancement of economicgrowth and development through the pursuit of the firm value
maximization (including shareholder and stakeholder values). To do this, shareholder value
is represented as ROE, whereas stakeholder value is measured as return on assets (ROA).
The study focuses on banks for a number of reasons. First, data on banks are easily
accessible making it easy to undertake the study. Second, the literature (Tadesse, 2002)
suggests that banks facilitate economic growth and development in most countries, and
hence investigating corporate governance and value maximization may help to promote the

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