Board Structure and Bank Performance in Ghana

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  • This part will be told by Himalaya Ban.
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  • Board Structure and Bank Performance in Ghana

    1. 1. Department of Accounting and Finance, School of Business Ghana Baptist University College, Kumasi, Ghana Michael Adusei
    2. 2. • Investigates the relationship between board structure and bank performance a • Undertakes ROE and CIRATIO as dependent and Board Size, Board Independence, Bank Age, Bank Size, Funds Availability, Nature of Bank ,Listing in GSE as independent variable. • The study reveals that banks seeking improvement in performance should constitute small-sized BOD composed of few independent directors.
    3. 3. • BOD over the years are not legally bound to represent interest of shareholder only. • The duty of loyalty and care of board and manager transcends to encompass depositors and bank regulators because of strategic nature of industry • Unlike non-bank firm where standards are flexile, banking firms have to operates by adherence to strict rules and regulations • Various literature shows no empirical study has been undertaken to ascertain the relationship between board structure and bank performance.
    4. 4. • To examine bank’s board of directors role in explaining the variation in banks performance • To ascertain the impact of composition of board of directors for the variation in banks performance
    5. 5. • This research uses 17 out of 26 universal banks in Ghana representing 65% of the study population. • The remaining 9 banks were excluded due to non-availability of their annual financial reports covering the study period. • Data were extracted from annual reports of 17 banks from the period of 2005 to 2009 through the websites of banks. • 55 observations were obtained after editing the annual reports of the 17 banks and were; therefore used for the study.
    6. 6. Bank Performance Board Size Board Composition Control Variables
    7. 7. H1a • The size of the board of directors of a bank should be significantly and negatively related to its profitability H1b • The size of the board of directors of a bank should be significantly and negatively related to its efficiency
    8. 8. H2a • The proportion of independent directors of a bank should be significantly and positively related to its profitability H2b • The proportion of independent directors of a bank should be significantly and negatively related to its efficiency
    9. 9. Variables Description Measures of Bank Performance (dependent variable): Return on Equity (ROE) Cos Income Ratio (CIRATIO) Profit after tax/Total Equity Operating expenses other costs/Net Income Measures of Board Structure: Board Size The natural logarithm of the total number of members of the BOD Board compositions Board independence (BINDEPEND) Proportion of outside directors on the board Control Variables: Size of bank (SIZE) Funds for lending (FUNDS) Dummy for ban nature (BNATURE) Dummy for listed banks (LISTING) The natural logarithm of total assets The natural logarithm of total deposits 1: if bank is as subsidiary of a multinational or international bank;=0 otherwise 1: if bank is listed on GSE;=0; otherwise
    10. 10. ROE= CONSTANT +β1BSIZE+ β2BINDEPEN+ β3AGE+ β4SIZE+ β5FUNDS+ β6BNATURE (Dummy) + β7LISTING (Dummy) CIRATIO = CONSTANT +β1BSIZE+ β2BINDEPEN+ β3AGE+ β4SIZE+ β5FUNDS+ β6BNATURE (Dummy) + β7LISTING (Dummy) Ya = α + βXit + δ1dit + δ2d2it + ёit
    11. 11. Variables Beta t Significance CONSTANT - 2.623 0.12 BSIZE -.371 -2.386 0.021 BINDEPEN -.092 -0.602 0.550 AGE .337 2.113 0.040 SIZE .210 1.274 0.209 FUNDS -.475 -2.481 0.017 BNATURE .385 2.609 0.010 LISTING .255 1.66 0.102 R2 =0 .317 F=3.113 N=55 Probability (F-statistic) 0.009
    12. 12. Variable β t Significance CONSTANT - -3.058 0.004 BSIZE .425 3.252 0.002 BINDEPEN .257 2.007 0.050 AGE -.474 -3.538 0.001 SIZE .030 0.217 0.830 FUNDS .520 3.234 0.002 BNATURE -.265 -2.204 0.032 LISTING -.553 -4.301 0.000 R2=0.518 Probability (F-statistic) 0.000 F=7.207 N=55
    13. 13. ROE BSIZE INDEPEND AGE SIZE FUNDS BNATURE LISTING PearsonCorrelation ROE 1 -0.137 -0.161 0.213 0.219 0.014 0.255 0.166 BSIZE -0.137 1 0.107 0.533 0.151 0.307 0.22 0.372 INDEPEND -0.161 0.107 1 -0.01 -0.35 -0.482 -0.29 -0.276 AGE 0.123 0.533 -0.005 1 0.398 0.426 0.226 0.411 SIZE 0.219 0.151 -0.357 0.398 1 0.642 0.269 0.393 FUNDS 0.014 0.307 -0.482 0.426 0.642 1 0.446 0.428 BNATURE 0.255 0.22 -0.29 0.226 0.269 0.446 1 0.017 LISTING 0.166 0.372 -0.276 0.411 0.393 0.428 0.017 1 Sig.(1-tailed) ROE . 0.16 0.121 0.06 0.054 0.459 0.03 0.112 BSIZE 0.16 . 0.219 0 0.136 0.011 0.054 0.003 INDEPEND 0.121 0.219 . 0.485 0.004 0 0.016 0.021 AGE 0.06 0 0.485 . 0.001 0.001 0.049 0.001 SIZE 0.054 0.136 0.004 0.001 . 0 0.023 0.002 FUNDS 0.459 0.011 0 0.001 0 . 0 0.001 BNATURE 0.03 0.054 0.016 0.049 0.023 0 . 0.0452 LISTING 0.112 0.003 0.021 0.001 0.002 0.001 0.452 . Correlation Panel A Return on Equity
    14. 14. CIRATIO BSIZE INDEPEND AGE SIZE FUNDS BNATURE LISTING PearsonCorrelation CIRATIO 1 0.101 0.0274 -0.3 -0.1 -0.011 -0.122 -0.431 BSIZE 0.101 1 0.107 0.533 0.15 0.307 0.22 0.372 INDEPEND 0.274 0.107 1 -0.01 -0.4 -0.482 -0.29 -0.276 AGE -0.302 0.533 -0.005 1 0.4 0.426 0.226 0.411 SIZE -0.14 0.151 -0.353 0.398 1 0.642 0.269 0.393 FUNDS -0.011 0.307 -0.482 0.426 0.64 1 0.446 0.428 BNATURE -0.122 0.22 -0.29 0.226 0.27 0.446 1 0.017 LISTING -0.431 0.372 -0.276 0.411 0.39 0.428 0.017 1 Sig.(1-tailed) CIRATIO . 0.232 0.022 0.012 0.15 0.469 0.187 0.001 BSIZE 0.232 . 0.219 0 0.14 0.011 0.054 0.003 INDEPEND 0.022 0.219 . 0.485 0 0 0.016 0.021 AGE 0.012 0 0.485 . 0 0.001 0.049 0.001 SIZE 0.154 0.136 0.004 0.001 . 0 0.023 0.002 FUNDS 0.469 0.011 0 0.001 0 . 0 0.001 BNATURE 0.187 0.054 0.016 0.049 0.02 0 . 0.452 LISTING 0.001 0.003 0.021 0.001 0 0.001 0.452 . Correlation Pane B: Cost-Income Ratio (CIRATIO)
    15. 15. • Small board size increases the performance of a bank in Ghana which consistent to extant literature • Increase in bank board independence results in a decline in bank efficiency. • Thus bank seeking some improvement in their performance should constitute small sized board of directors composed of few independent directors
    16. 16. • The study relies on financial reports and financial reports suffers from flaws like – subject to manipulation – undervaluation of assets, – create distortions due to depreciation policies adopted, – inventory valuation and treatment of certain revenue and expenditure items, – difference in methods adopted for consolidation of accounts and – lack standardization in handling of international accounting conventions.

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