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Board Structure and Bank Performance in Ghana
1.
2. Department of Accounting and Finance,
School of Business
Ghana Baptist University College, Kumasi, Ghana
Michael Adusei
3. • 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.
4. • 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.
5. • 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
6. • 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.
8. 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
9. 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
10. 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
16. • 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
17. • 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.
Editor's Notes
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