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CHINHOYI UNIVERSITY OF TECHNOLOGY
SCHOOL OF BUSINESS SCIENCES AND MANAGEMENT
POST GRADUATE PROGRAMME
Corporate governance and performance in the Zimbabwe banking sector: A case study
of BancABC, Metropolitan Bank and ReNaissance Merchant Bank
By
Cautious Kamunda
C13122432P
A Dissertation Submitted to the School of Business Sciences and Management in Partial
Fulfilment of the Requirements of the Award of the Master of Science in Strategic Management
Degree.
Supervisor: Prof M Gunduza
Date: June 2015

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DECLARATION
I, Cautious Kamunda, do hereby declare that this dissertation is a result of my own investigation
and research, except to the extent indicated in the acknowledgements, references and by
comments indicated in the body of the report, and that it has not been submitted in part or in
full for any other degree to any other university.
Name: Cautious Kamunda Date: 16 June 2015
………………………………….
Student’s Signature
Supervisor: Prof. M Gunduza Date: 16 June 2015
………………………………….
Supervisor’s Signature

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DEDICATION
This dissertation is dedicated to my entire family, especially my sons Jayden Ishe Kamunda
and Chikondi Cautious Kamunda, as well as my beautiful wife Sheillah. I also dedicate the
dissertation to daddy and to the loving memory of my late mom.

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ACKNOWLEDGEMENTS
I wish to express my sincere gratitude to all who assisted me in the production of this document.
Special thanks go to my project supervisor Prof. M Gunduza .Finally l want to thank all
employees of the studied institutions whom I bothered during the production of this document.

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ABSTRACT
Corporate governance has received much attention in the past two decades and has been a
growing topic for debate in both developed and developing countries. This is mainly because
of the Asian crises, the global financial crisis and the many financial scandals and failures that
have occurred in a number of countries. Good corporate governance is now considered crucial
for regulating companies and enhancing their performance.
The purpose of this study was to examine the relationship between corporate governance
practices and in the Zimbabwean banking sector, as a result of the persistent indigenous bank
failures caused by corporate governance deficiencies and the need for Zimbabwe to adopt the
specific corporate governance code. Theoretically, this study looked at the stakeholder theory,
the agency theory and the shareholder theory. Literature indicated that there are various
measures of performance in the banking sector and these are classified as either financial or
non-financial measures. To accomplish the research objectives the research used an interpretive
epistemology and a subjectivist ontological position. An integrated approach regarding
qualitative and quantitative methods was used with qualitative methods being predominantly
utilized. The research used a sample frame of commercial banks to distribute questionnaires
and conduct interviews. Secondary data analysis was used on closed banks.
The study results indicate that there is a positive relationship between corporate governance
and performance in the banking sector in Zimbabwe. Banks with sound corporate governance
practices exhibit favourable performance results both financial and non-financial. Therefore,
this study provides evidence in support of a positive relationship for active shareholders,
effective board of directors, effective management and employee participation and firm
performance based on both performance measures. Based on the conclusion and implications
discussed, this study presents several recommendations for future research.

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Contents
DECLARATION.....................................................................................................................................i
DEDICATION........................................................................................................................................ ii
ACKNOWLEDGEMENTS................................................................................................................... iii
ABSTRACT.............................................................................................................................................i
CHAPTER 1: INTRODUCTION TO THE STUDY..............................................................................1
1.0 Introduction...................................................................................................................................1
1.1 Background of the problem...........................................................................................................1
1.2 Statement of the problem..............................................................................................................6
1.3Research objectives........................................................................................................................7
1.4 Research questions........................................................................................................................7
1.5 Significance of research................................................................................................................8
1.6 Limitations....................................................................................................................................9
1.7 Delimitations.................................................................................................................................9
1.8 Scope of research........................................................................................................................10
CHAPTER 2: REVIEW OF LITERATURE........................................................................................11
2.0 Introduction.................................................................................................................................11
2.1 The Concept of Corporate Governance ......................................................................................11
2.2 A historical perspective of Corporate Governance.....................................................................13
2.3 Objectives of Corporate Governance..........................................................................................14
2.4 Banking Sector Corporate Governance.......................................................................................15
2.5 Corporate Governance Principles ...............................................................................................19
2.6 Theoretical Underpinnings on Corporate Governance ...............................................................21
2.7 Banking Sector Performance ......................................................................................................24
2.8 Corporate Governance and Performance ....................................................................................26
CHAPTER 3: RESEARCH METHODOLOGY ..................................................................................28
3.1 Introduction.................................................................................................................................28
3.2 Research Description ..................................................................................................................28
3.3 Research Approach and Design..................................................................................................29
3.3 The Population and Study Sample..............................................................................................31
3.4 Data Collection and Analysis......................................................................................................33
3.4.1 Primary Data Collection instruments...................................................................................33
3.5 Reliability and Validity...............................................................................................................35
3.5.1 Reliability.............................................................................................................................35
3.5.2 Validity ................................................................................................................................35
3.6 Data Analysis..............................................................................................................................35

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3.7 Conclusion ..................................................................................................................................36
CHAPTER 4: DATA ANALYSIS AND PRESENTATION ...............................................................37
4.1 Introduction.................................................................................................................................37
4.1.1 Description of sample data and response rate......................................................................37
4.1.1 Shareholder Analysis ...........................................................................................................40
4.1.2 Board of Directors Analysis.................................................................................................42
4.1.3 Audit Committee Analysis...................................................................................................44
4.1.4 Management and Staff Analysis ..........................................................................................47
4.3 Bank Performance.......................................................................................................................48
CHAPTER 5: SUMMARY; RECOMMENDATIONS AND CONCLUSIONS .................................51
5.1 Introduction.................................................................................................................................51
5.2 Research Review.........................................................................................................................52
5.3 Conclusions.................................................................................................................................53
5.3.1 Bank Performance................................................................................................................53
5.3.2 Relationship between corporate governance and bank performance...................................54
5.3.3 Relationship between audit committee and bank performance............................................55
5.3.4 Relationship between corporate governance and management............................................56
5.3.5 Disclosure and Transparency...............................................................................................57
5.3.6 RBZ Supervisory Measures .................................................................................................58
5.4 Recommendations.......................................................................................................................58
5.5 Research Implications.................................................................................................................61
5.6 Future Research ..........................................................................................................................61
REFERENCES .....................................................................................................................................63
APPENDICES ......................................................................................................................................67

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LIST OF FIGURES
Figure 1: Shareholder Analysis................................................................................................41
Figure 2: Board of Directors Analysis-BancABC ...................................................................42
Figure 3: Board of Directors Analysis-Metropolitan Bank .....................................................43
Figure 4: Audit Committe Analysis-BancABC .......................................................................44
Figure 5: Audit Committee Analysis-Metropolitan Bank .......................................................45

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CHAPTER 1: INTRODUCTION TO THE STUDY
1.0 Introduction
The Zimbabwean economy has witnessed an unprecedented phenomenon of bank failures and
corporate governance deficiencies are at the center of the failure causes. Corporate governance
is considered integral to the very existence of a firm. The aim of this research is to study the
relationship between corporate governance and bank performance in Zimbabwe. To measure
bank performance this study will use both financial and non-financial indicators. A case study
approach is adopted in this research focusing on BancABC, Metropolitan Bank and
ReNaissance Merchant Bank.
This chapter is an introduction to the problem and its setting. The chapter provides the rationale
of this study and introduces the objectives, key questions and concepts that guide this research.
An analysis of the problem covering its magnitude, distribution, severity and consequences is
given. The chapter also explains the research context, limitations, delimitations and
clarification of the key concepts.
1.1 Background of the problem
The global financial crisis of 2008 and its dampening effects on global economic activity was
largely attributed to failures and weaknesses in corporate governance arrangements. The twin
banking and financial crisis in Zimbabwe during the period 2008 and 2009 was also attributed
to poor corporate governance practices by individual banks. “The banking sector in Zimbabwe
continues to witness flawed corporate governance practices and arrangements designed to
undermine efforts by the regulatory authorities to ensure sustained financial sector stability”
(RBZ Monetary Policy Statement, 2013). The corporate governance problem in Zimbabwe has
been compounded by the existence of complex corporate structures within banking groups and
financial conglomerates which are used as conduits for regulatory arbitrage and siphoning of

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depositors’ funds. Following the Economic Structural Adjustment Programme (ESAP) 1992,
the Zimbabwean banking and financial services sector was liberalized. ESAP transformed the
economy from a command to a free market economy. Financial liberalization brought about
increased competition in the private sector. In line with the liberalized financial services sector
and technological changes countries especially in developing economies need to ensure they
pursue financial sector solvency and stability through corporate governance enhancements.
Researchers found out that corporate governance enhancements will strengthen and upgrade
the corporations’ level of sustainability in an increasingly open environment (Qi, Wu and
Zhang, 2000). It is stated that corporate governance examines how to achieve an increase in
the performance of firms.
The Reserve Bank of Zimbabwe produced the Banking Sector Vision 2020 to achieve financial
sector solvency and stability. The concept of corporate governance is one of the key features
or characteristic of the envisioned Zimbabwean banking sector by December 2020, as specified
in the RBZ blueprint of its Banking Sector Vision 2020. The proposed new law seeks to amend
the Banking Act [Chapter 24:20] to enable it to deal more effectively with developments in the
banking sector and, in particular, to improve the corporate governance of banking institutions.
It is stated that the increase in corporate scandals, the Asian financial crisis of 1997 and the
relative poor performance of business enterprises in African economies have led to the increase
in attention to corporate governance issues in the development debate (Berglof and Von -
Thadden, 1999).
Governance means the process of decision making and the process by which decisions are
implemented. According to the Gandhian definition, corporate governance refers to trusteeship
obligations inherent in company operations, where assets and resources are pooled and
entrusted to the managers for optimal utilization in the stakeholders interests. Good governance
has eight major characteristics. It is participatory, consensus oriented, accountable, transparent,

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responsive, effective and efficient, equitable and inclusive and follows the rule of law.
Corporate governance focuses on effective, transparent and accountable administration of
affairs of an institution by its management. It calls for the upholding of fairness, integrity,
trustworthy and ethical business contact. The history of corporate governance dates back to the
19th
century. In Zimbabwe it became popular mainly from the year 2000 that is the
hyperinflationary and financial crisis period all over the world as a result of lack of adherence
to corporate governance.Today’s world has seen that organization transparency, financial
disclosure, independency, board size, board composition, board committees, board diversity
are the cornerstone of good governance practices. Corporate governance is essentially about
leadership:
-leadership for efficiency,
-leadership for probity,
-leadership with responsibility,
-leadership which is transparent, and
-leadership which is accountable.
A health banking sector is the heart of any economy, hence corporate governance of banks is
important for several reasons. Banks play an important role in the national and, increasingly,
international payment system. As the main intermediates in the financial systems, they are
important engines of economic growth (King and Levine, 1993). This is particularly true
of African economies where “banking systems are small, costly, and focused on the short-term
end of the yield curve” (Beck and Cull, 2013). Considering their important role as the dominant
source of financing for the real economy, banks greatly affect the governance of real sector
firms. In addition, banks distress, has far more negative consequences in economic
development. Therefore banking sector solvency and stability through effective sector

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management and regulation and good corporate governance become crucial. Governance
problems continue to plague many private and government institutions throughout Africa and
as such undermine the market-based provision of financial services and reform attempts and
government interventions aimed at fixing market failures.
The complexity of the corporate governance system is also exacerbated by the special nature
of banking functions hence leading to more intricate agency problems. In Africa, political
intervention and instability also further complicate the corporate governance of banks through
government ownership and restrictions on foreign- bank entry (Arun and Turner, 2004).
Furthermore, most developing economies have subjected their financial service sector to
liberalization and privatization, adding even more to the complexity of governance issues in
the sector. In Zimbabwe, following the dictated Economic Structural Adjustment Programme
(ESAP) during the years 1992-1998, the economy was liberalized through the opening of
markets, liberalization of financial markets, privatization, relinquishing government control
and allowed market forces to play their part. The interaction of market forces has greater
implications on the performance of firms as profits will no longer be guaranteed.
Financial performance is a subjective measure of how well an organization can use assets from
its primary mode of business and generate revenues (Greenwood and Jovanovic, 1990).
Financial performance is also used as a general measure of a firm's overall financial health over
a given period of time, and can also be used across firms in the same industry or for cross sector
comparisons. There are many different ways to measure financial performance, but all
measures should be taken in aggregation. Line items such as revenue from operations,
operating income or cash flow from operations can be used, as well as total unit sales
(Jayawardhera and Foley, 2000). Profit is the ultimate goal of firm. To measure the
profitability, there are a variety of ratios used of which Return on Asset (ROA) and Return on
Equity (ROE) are the major ones (Murthy and Sree, 2003). ROA is a major ratio that indicates

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the profitability of a bank. It is a ratio of Income to its total assets (Khrawish, 2011). It measures
the ability of an organization’s management to generate income by utilizing company
assets at their disposal. ROE is a financial ratio that refers to how much profit a company
earned compared to the total amount of shareholder equity invested or found on the balance
sheet. ROE is what the shareholders look in return for their investment. Other financial
measures include Economic Value Added (EVA) and Net Income. Bank performance can also
be measured using non-financial methods such as community investment, cultural entropy,
customer numbers and environmental value.
Regulators use CAMELS ratings to evaluate the safety and soundness of banks. CAMELS
ratings rely heavily on financial statement data and its components are Capital adequacy; Asset
quality; Management quality; Earnings quality; Liquidity; Sensitivity to market risk.
CAMELS ratings range from 1 to 5 as follows
– Composite “1”—banks are basically sound in every respect
– Composite “2”—banks are fundamentally sound, but may have modest
weaknesses correctable in the normal course of business
– Composite “3”—banks exhibit financial, operational, or compliance
weaknesses ranging from moderately severe to unsatisfactory
– Composite “4”—banks have an immoderate volume of serious financial
weaknesses or a combination of other conditions that are unsatisfactory
– Composite “5”—banks have an extremely high immediate or near term
probability of failure
“The banking sector in Zimbabwe continues to witness flawed corporate governance practices
and arrangements designed to undermine efforts by the regulatory authorities to ensure

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sustained financial sector stability. Some, particularly local banking institutions continue to
show total disregard for sound corporate governance practices resulting in some founding
directors ‘dipping their fingers into depositors’ funds” (RBZ Monetary Policy, 2015). It is
against the background of these negative developments and importance and complexity of
governance systems of banks, that this research will have implications on the broader subject,
“What is the relationship between corporate governance and banking sector performance in
Zimbabwe”.
An in depth analysis of BancABC, Metropolitan Bank and ReNaissance Merchant Bank will
help to establish the relationship between corporate governance and performance in the
Zimbabwean banking sector.
Architecture of the Zimbabwean Banking Sector
Following the closure of Capital Bank Limited, AfrAsia Bank and Allied Bank Limited, the
country’s banking sector has gone down to 18 operating institutions, comprising 13
commercial banks, one (1) merchant bank, three (3) building societies and one (1) savings
bank. In addition, there are 147 registered moneylending and credit-only microfinance
institutions” (RBZ Monetary Policy Statement January 2015). On 15 January 2015, the
Reserve Bank of Zimbabwe issued the first deposit taking microfinance institution license
to African Century Limited.
1.2 Statement of the problem
Zimbabwe has witnessed an unprecedented phenomenon of bank failures in the last fifteen
years. At the centre of these financial tsunamis are alleged poor adherence to sound corporate
governance principles and practices at institutional level.This has resulted in a number of
commercial banks being placed under judicial management as well as closures. This calls for
remedies to restore confidence in the banking sector. A number of problems have been

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wreaking havoc in banks’ corporate governance structures. These issues include but not limited
to nepotism, insider loans, make up reporting, and issues of ceremonial boards of directors,
improperly constituted boards of directors, poor board oversight, inexperienced management,
and undue influence or dominance by a few shareholders. Therefore this research seeks to
establish the relationship between corporate governance and bank performance in the
Zimbabwe banking sector.
1.3Research objectives
The main objective of this research is to explore the relationship between corporate
governance and performance in the Zimbabwe banking sector. In detail it seeks to achieve the
following specific objectives:
1) To establish the relationship between corporate governance and performance in the banking
sector.
2) To establish the relationship between directors shareholding and banks performance in
Zimbabwe.
3) To determine the strength of supervisory measurers put in place to enhance good corporate
governance by the Reserve bank of Zimbabwe.
4) To analyze the level of adherence to corporate governance principles by banks in Zimbabwe.
5) To give recommendations to stakeholders about sound strategies to improve corporate
governance in order to stimulate banks performance.
1.4 Research questions
This research aims to address matters concerning the major questions emerging within this
field of study:

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1. Is there a relationship between corporate governance and performance in the banking
sector?
2. Is there a significant relationship between directors’ shareholding and the financial
performance of banks in Zimbabwe?
3. How effective are the supervisory measures put in place to enhance good corporate
governance by the Reserve bank of Zimbabwe?
4. To what extent are banks in Zimbabwe adhering to corporate governance?
5. What plausible recommendations can one give to strengthen the banking sector in
Zimbabwe?
1.5 Significance of research
This research is of both academic as well as practical business significance. From an academic
perspective, the findings of this study will make significant contributions to the field of
Strategic Management and Corporate Governance. The first contribution is to analyze the
contribution of good corporate governance to the performance of banking institutions in
Zimbabwe. The intention is to reverse the persistent bank failures in Zimbabwe and ensure
financial sector stability.
In view of the RBZ Banking Sector Vision 2020, this study is of importance to bank regulators
such as the government and the central bank, local and foreign investors, financial and
economic analysts, banking community, academics as well as other stakeholders. This study
evaluates the current position of banks in relation to the corporate governance principles and
practices spelt out by the Reserve Bank of Zimbabwe. To the management in banking, this
study will inform them on the financial and non-financial effect of good corporate governance
on the performance of their institutions. Through the findings of this study, the management
will be able to strategize on how to realize maximum benefits through adopting good corporate
governance practices.This research anticipates that boards of directors will find the information

17. 9
valuable in benchmarking their individual banks’ performance within the industry. The result
of this study will also serve as a data base for further researchers in this field of research. More
so it will highlight the rewards and importance of adhering to principles of corporate
governance.
For the policy makers and Reserve Bank of Zimbabwe (RBZ), the findings of this study will
be important in informing the policy formulation especially with regard to regulating the
financial services sector in Zimbabwe and introduce greater transparency in the shareholding
and operations of banking institutions. The research findings also add a dimension that may
help make banking institutions more responsive to their customers’ needs and to encourage
resolution of disputes between banks and their customers.
To the researcher the study is of value in adding to banking sector knowledge and completion
of the post-graduate studies with Chinhoyi University of Technology. The study will be used
as a source of reference material besides suggesting areas where future research may be
conducted.
1.6 Limitations
Considering the broad nature of the subject matter, time has been a factor to consider as the
researcher is also a full time employee and family man hence balance had to be maintained.
The Zimbabwean banking sector is one of the most secretive and largely opaque business
landscape where every piece of information is insulated under the “confidentiality” ambit.
Therefore, the researcher had to deploy astute data mining techniques to acquire relevant data.
1.7 Delimitations
The study will focus on the relationship between corporate governance and bank performance
in Zimbabwe. This study concentrated on Harare as a representative sample and three banks
BancABC, Metropolitan Bank and ReNaissance Merchant Bank were be used as points of

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references. Harare was chosen since it is the metropolitan province, that is, the political and
economic capital in Zimbabwe. As a cosmopolitan city with diverse businesses, the results
obtainable are considered by the researcher to be representative of all other provinces. The
availability of information of BancABC, Metropolitan Bank and ReNaissance Merchant Bank
necessitated the selection of these three banks. The researcher is an employee of BancABC.
1.8 Scope of research
This study seeks to establish the relationship between corporate governance and performance
of banks in Zimbabwe. The focus on this sector is based on the fact that the banking sector is
the corner stone of economic stability. All financial transactions are facilitated through banks.
Banks play a crucial role of providing loans to companies, individuals as well as the
government. This study focuses on BancABC, Metropolitan Bank and ReNaissance Merchant
Bank.

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CHAPTER 2: REVIEW OF LITERATURE
2.0 Introduction
A literature review discusses prior research, related research and theoretical frameworks in a
particular field of study within a certain period. To review in this context means to look again
in order to come up with informed conclusions.
This chapter focuses on literature related to the relationship between corporate governance and
bank performance; this is done in an endeavor to answer the research questions and achieve
the stated objectives. Literature from both practitioner and academic domains was reviewed.
2.1 The Concept of Corporate Governance
Corporate governance is a system by which businesses either public or private are directed and
managed by different actors in a firm, such as the shareholders, board of directors,
management, employees and other key stakeholders. With reference to the private sector,
Edwards and Clough (2005), stated that corporate governance refers to the relationship between
a firm and all its stakeholders. Corporate governance is amongst the main factors that determine
the stability of any organization and its ability to attain to corporate sustainability despite the
highly competitive global market. Economic literature indicates that the stability and solvency
of any organization depends on the soundness of its individual components and the
relationships between them.
According to Morck, Shleifer and Vishny (1989), corporate governance together with such
other factors as strong prudential regulation, effective marketing and accurate reporting is
among the key factors that determine the soundness of any country’s financial system.
The agency theory dominates the debate on corporate governance. The issue of separation of
ownership and control is a defining feature in any company. According to the Agency Theory

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terms, the owners are principals and the managers are agents with the principals contracting
the agents to perform management duties on their behalf. It is recorded that the contract is not
always cordial and problems occur as the managers in most cases abandon their key duties to
act in the best interests of the owners. Managers in most cases resort to pursuing and
maximizing their own wealth, power and prestige while the principals seek to maximize the
return on their investments. In most large companies such agency tensions or tensions of
interest between owners and managers are more pronounced due to the employee share
schemes in which managers have a small share in the company’s shares. In this regard personal
agents goals maybe given priority over the ultimate objective of maximizing shareholder
wealth.
According to Arun and Turner (2002) there seem to be exists a narrow focus to the subject of
corporate governance, which considers the issue as just as approach through which owners are
guaranteed that managers will fulfill their contractual obligations. Strine (2010) pointed out
that corporate governance is about putting in place the structure, processes and mechanisms
that insure that the firm is directed and managed in a way that enhances long-term shareholder
value through accountability of manager, which will then enhance firm performance. OECD
(1999) defined corporate governance as the system by which business organizations are
directed and controlled in favor of all the stakeholders. Corporate governance can also be
viewed as the manner in which a corporation is run:
-to achieve its objectives
-transparency of its operations
-accountability and reporting
-good corporate citizenship.

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2.2 A historical perspective of Corporate Governance
The background of corporate governance dates back to the 19th
Century when state corporation
laws enhanced the rights of corporate boards without unanimous consent of shareholders. They
did it in exchange for statutory benefits such as appraisal rights in order to make corporate
governance more efficient. The early debates came up after the increase of agency problem,
which emanated from separation of ownership and control. Corporate governance systems
undergone dramatic changes over the years, often in response globalization, corporate scandals
or systemic crises. The concept of corporate governance is gaining momentum because of
various factors as well as the changing business environment. Today’s world has seen that
organization transparency, financial disclosure, independence, board size, board composition,
board committees, board diversity among other is the cornerstone of good governance
practices.
“Currently many country leaders all over the world has increased concern over corporate
governance due to the increase of reported cases of frauds, inside trading, agency conflicts
among other corporations saga” (Enobakhane, 2010).Corporate failures have been recently
witnessed in both developed and developing countries with the reported cases of the East Asia
crises of 1997 and 1998 and the just ended global financial crisis of 2007 and 2008. The crises
emanated from the poor governance practices from the financial sector. Since mortgage market
was the mother of the crisis, this has triggered the world leaders to enact some laws, which
increase banks governance. This is supported by Ahmad (2006) who argued that a sound
banking system requires appropriate infrastructure to support efficient conduct of banking
business operating environment, governance and regulatory framework at domestic as well as
international levels in order to reduce bank crisis.

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2.3 Objectives of Corporate Governance
Kolk and Pinkse (2010) assert that good corporate governance has many benefits to the
organization. Good governance is integral to the very existence of a company. It inspires and
strengthens investor’s confidence by ensuring company’s commitment to higher growth and
profits.In 2002, L Klapper and I Love from the World Bank found evidence that improving a
company’s corporate governance has proportionately greater impact in countries with weak
legal environments. They suggested that companies can partially compensate for ineffective
laws and enforcement by establishing good corporate governance at the company level and
providing credible investor protection. Corporate governance has been reported as
guaranteeing better access to external finance, lower costs of capital – interest rates on loans,
improved company performance and sustainability, higher firm valuation and share
performance and reduced risk of corporate crisis and scandals.
According to the ICSI, factors which add greater value through good governance may be
summarized as follow:
 adoption of good governance practices results in stability and growth to the enterprise.
 good governance system, is key to building public and stakeholder confidence.
Investors seek to enter into contracts with organizations with exemplary corporate
governance credentials benchmarked to international best practices.
 effective governance reduces perceived risks, consequently reduces cost of capital; it
also enables board of directors to take quick and better decisions which ultimately
improves bottom line of the corporates.
 in today’s knowledge driven economy, demonstrating excellence in skills has become
the ultimate tool in the hands of board of directors to leverage competitive advantage.
 adoption of good corporate governance guarantees corporate sustainability in the long-
run and strengthens relationships with existing and potential.

23. 15
 a good corporate citizen is a center of attraction and enjoys a position of respect.
 potential stakeholders seek to enter into relationships with enterprises who adhere to
standard governance principles and practices.
Good corporate governance can reduce the risk of financial crisis, which can have devastating
social and economic costs (Levine, 2006). Good corporate governance can lead to better
relationship with all stakeholders and thus improve labor relations as well as the climate for
improving social aspects such as environmental protection (Enobakhane, 2010). Brown and
Caylor (2004) found out that adhering to high standards of good governance results in better
performance. This clearly shows that good corporate governance is a determinant of
performance in the banking sector.
RBZ Journal - Bank Licensing Supervision and Surveillance (2004) indicates that banking
markets thrives on public confidence, otherwise without this confidence it will struggle to
maintain its status as a driver of economic transformation. Corporate governance is pivotal to
achieving the growth prospects of an economy, because sound corporate governance practices
reduces investment risk, attract foreign direct investments and improve performance of
organizations (Spanos, 2005).
2.4 Banking Sector Corporate Governance
Considering their important role in an economy, corporate governance of banks is of great
importance. Banks are highly unique with regards their capital structures and associated
information asymmetry. This is because banks to have more debt than equity in their capital
structure, as a result of deposits from clients both demand and savings deposits. This creates
tensions between managers and owners: conflicts in interests and risk perception among
more than two parties at the same time. Most depositors have little knowledge and incentive
to monitor the managers and shareholders in the bank. The secrecy within the banking market
allows bank managers and shareholders an incentive to invest in riskier assets.

24. 16
On a theoretical perspective, corporate governance has been seen as an economic
discipline, which examines how to achieve an increase in the effectiveness of certain
corporations with the help of organizational arrangements, contracts, regulations and
business legislation (Basel Committee on Bank Supervision, 2003). It has been emphasized
that banks play a crucial role in any economy; hence the need to enhance their corporate
governance if solvency and stability are to be attained (Basel Committee on Banking
Supervision, 2003). Levine (1997) stated three important roles of banks in an economy:
 banks have a dominant position in the financial system of a developing country and
are extremely important engines of economic growth.
 since financial markets are small and underdeveloped, banks in developing economies
are the most important source of finance for real sector firms.
 banks in developing countries are usually the main depository for the economy’s
savings.
The management of banks requires a consideration of corporate based on two dimensions. First,
there is need for transparency in the corporate function, thus protecting the investors’ interest.
Second, there is need for a risk sound management system in a bank. The Basel Committee
on Banking Supervision (1999) indicates that, corporate governance involves the manner
in which the business and affairs of individual institutions are governed by those at the
highest levels of the organization’s hierarchy. This has implications on how individual banks:
i) set organization’s goals and objectives (mainly generating a return on investments);
ii) conduct day-to-day business (operations management);
iii) incorporate all stakeholder segments;
iv) align corporate activities with the environment.

25. 17
Banks are both opaque and complex. “Banks can alter the risk composition of their assets more
quickly than most nonfinancial industries, and banks can readily hide problems by extending
loans to clients that cannot service previous debt obligations” (Levine, 2006). Moreover, the
business of securitization has in essence speeded up the process of lending at the origination
stage and in interbank markets and increased opacity by merging large amounts of information
and relying on credit ratings. Opacity and complexity play a role in governance in both the
interaction between the board and management and the relationship between the bank and its
regulators.
External corporate governance is the key type of governance in banks considering their
complexity, but also on the internal governance mechanisms to show the commitment of bank
managers and equity owners to depositors. The Basel Committee on Banking Supervision
(BCBS) states that board of directors and internal auditors play a crucial role in the governance
of banks. Literature suggests that board size, composition and activity affect the board’s
effectiveness, which in turn affects bank value (Nam and Lum, 2006). In order to allow
banks to play the key dual roles of advisor and monitor within the banking market, banks tend
to have much bigger and more independent boards. This is also necessitated by their particular
idiosyncrasies and agency tensions within the banking system.
Board of directors
Organizations, in line with the evolution of corporations are managed and directed under the
direction of board of directors. The board works closely with the CEO and through him or her
delegate to management, the authority and responsibility for managing the everyday affairs of
the corporation. The shareholders relies on directors for the monitoring of management. It is
important that directors display a range of expertise, experience and strategic thinking.
Effective directors maintain an attitude of constructive skepticism; they ask incisive, probing

26. 18
questions and require accurate, honest answers; they act with integrity; and they demonstrate a
commitment to the corporation, its business plans and long-term stockholder value.
The board of directors of the corporation is ultimately responsible for the stewardship of the
organization. The board of directors has a dual mandate:
Advisory: consult with management regarding strategic and operational direction of the
company.
Oversight: monitor company performance and reduce agency costs.
The theory of corporate governance in banking requires consideration of the following issues:
 supervision and regulation as part of external governance
 regulation of the market itself as a distinct and separate dimension of decision making
within banks
 regulation as constituting the presence of an additional interest external to and separate
from the firm’s interest
 regulation as constituting an external party that is in a risk sharing relationship
with the individual bank firm.
Therefore, in order to misunderstand the agency tensions in banking the issue of supervision
and regulation need to be considered in totality. This may lead to prescriptions that amplify
rather than reduce risk. In Zimbabwe, the regulatory functions, which is directed at the
objective of promoting and maintaining financial sector stability in the economy is
controlled by the Reserve Bank of Zimbabwe while the supervisory bodies are Deposit
Protection Corporation and the Reserve Bank of Zimbabwe. Therefore, accepting that
regulation impacts the banking market as a whole calls for the acceptance of the fact that
regulation impacts on the dynamics and structure of the owners and management relationships
in banks.

27. 19
The BCBS (1999) states that there is a positive relationship between transparency of
information related to decisions and actions; and accountability in that it gives market
participants sufficient information with which to judge the management of a bank. The
Committee further indicated that corporate governance structures varies across countries
hence, there is no one size fits all answer to structural issues and that laws do not need to be
the same across countries. Sound governance therefore, can be practiced regardless of the form
used by a banking organization. The committee therefore suggested four important forms of
oversight that should be included in the organizational structure of any bank in order to ensure
the appropriate checks and balances. These forms of oversight include:
1) board oversight on management and the company;
2) stakeholder oversight not involved in the day-to-day running of the various business
areas;
3) direct line supervision of different business areas, and;
4) independent audit functions and risk management
Total quality management is one key essence of good governance in banking industry, which
includes six performance areas (Klapper and Love, 2002). These critical success areas include
capital adequacy, assets quality, management, earnings, liquidity, and sensitivity risk. It is
stated that the extent of adherence to these six parameters determines the quality rating of an
organization.
2.5 Corporate Governance Principles
Good governance has 8 major characteristics. It is participatory, consensus oriented,
accountable, transparent, responsive, effective and efficient, equitable and inclusive and
follows the rule of law. It assures that corruption is minimized, the views of minority are taken

28. 20
into account and that the voices of the most vulnerable in society are heard in decision making.
It is also responsive to the present and future needs of society.
Transparency
Transparency necessitates that information is freely available and directly accessible to those
who will be affected by such decisions and their enforcement. It is an open life, open book
system in a competitive world. The accounting and auditing functions play an essential role in
good corporate governance, emphasizing the importance of corporate transparency with
shareholders and other stakeholders.
Participation
It refers to the involvement of all stakeholders in decision making. Participation could be either
direct or through legitimate intermediate institutions or representatives. Participation by a few
key individuals can have an influential role on company business, performance, reputation, and
share valuation.
Rule of Law
Good corporate governance requires fair legal frameworks that are enforced impartially. It also
requires full protection of human rights. This is a corollary to the transparent principle. It means
an enterprise should obey all the rules and regulations already in force in the community.
Consensus Oriented
It is a principle of increasing involvement and hence ownership. Listen long so as to make
wise, well informed decisions. It involves getting different perspectives on one issue.
Equity and inclusiveness

29. 21
A society’s well-being depends on ensuring that all its members feel that they have a stake in
it and do not feel excluded from the mainstream society.
Efficiency and Effectiveness
Good governance means that processes and institutions produce results that meet the needs of
society while making the best use of the resources at their disposal. The concept of efficiency
covers the sustainable of available resources.
Accountability
Accountability is considers the relationship between an organization and its external
environment, and therefore the need for the organization to assume responsibility for the effects
of its practices. This concept therefore places an organization as part of the wider societal
network and has responsibility to the total network rather than just to its shareholders.
“Accountability is a means of concretizing relations between institutions, delineating
responsibilities, controlling power, enhancing legitimacy, and ultimately promoting
democracy” (Fisher, 2004:510). This implies a relationship in which an individual or agency
is held to answer for performance that involves some delegation of authority to act.
Responsiveness
Good governance requires that institutions and processes try to serve all stakeholders within a
reasonable timeframe. It is a corollary of participation and transparency principle.
2.6 Theoretical Underpinnings on Corporate Governance
According to the agency theory good corporate governance should lead to an improvement in
the stock prices or long-term performance, because when agents are better supervised,
agency costs are decreased (Albanese, Dacin and Harris, 1997). Firms need internal
mechanisms of corporate governance to mitigate the probability of having agency problems.

30. 22
The agency problem was first highlighted by Adam Smith in the eighteenth century. The
agency theory is assumed to afford a foundation of corporate governance through the use of
internal corporate governance mechanisms. According to the Agency Theory, the shareholders
are principals and the managers are agents with shareholders contracting the agents to perform
service on their behalf. Tensions occur as the organization is viewed as an organization with
contracts between the shareholders and the managers. Managers may pursue personal motives
other than maximizing shareholder wealth, which give rise to tensions and as such increase
agency costs.
It is highly possible that managers pursue their own self-interest rather than in the best
interests of the company because of asymmetric information as managers generally are
on the ground than shareholders whether they are meeting their objectives, and uncertainty.
The business environment is full of uncertainty with a number of factors that can influence the
performance of the company. The Agency Theory argues that under conditions of incomplete
information and uncertainty, which characterize most business settings, two agency problems
arise: adverse selection and moral hazard. Adverse selection refers to the condition under
which the shareholders are unable to ascertain whether management accurately represents their
ability to do the work as per the contract. Moral hazard refers to the condition under which the
shareholders cannot be sure if the managers has put forth maximum effort.
Agency theorists considers directors as self-serving and stewardship theorists suggests
that directors frequently have interests that are consistent with those of owners. Where
managers have served a corporation for a number of years, there is a “merging of
individual ego and the corporation” (Donaldson and Davis, 1991). Equally, managers may
carry out their roles in line with the contracts of service and from a sense of duty. The
stewardship perspective suggests that the attaining organizational results also satisfies the
individual needs of the steward. The steward identifies greater satisfaction accruing from

31. 23
satisfying organizational goals than through self-serving behavior. Stewardship theory
recognizes the importance of structures that empower the steward, offering maximum
autonomy built upon trust.
The stakeholder theory is also discussed in corporate governance, with regard to the
organization’s responsibility to the wider community. A stakeholder is any group of individuals
who can affect or is affected by the activities of the firm, in achieving the objectives of the firm
(Freeman 1984). Sundaram and Inkpen (2004) that “stakeholder theory attempts to address the
question of which groups of stakeholder deserve and require management’s attention”.
Stakeholder theory supports the agency perspective, where responsibility of directors is
increased from shareholders to other stakeholders’ interests.
The stakeholder theory is particularly important for managers in a corporation, who have
critical networks of relationships other than those with the owners, managers and employees
who are part of the agency theory (Freeman, 1999). Kaplan and Norton (1996) argue that a
company should develop relationships with customers by improving customer services,
thereby enhancing its financial performance. Atkinson, Waterhouse and Wells (1997)
emphasize that employees and communities also need to be included in relationships in order
to enhance financial performance. The influences and functional mechanisms relating to
stakeholders can affect a firm’s ability and performance (Clarkson, 1995).
According to Clarke (2004), if management focuses on maximizing the total wealth of the
organization, they need to consider the effects of their decisions on the wider community.
Pesqueuy and Damak-Ayadi (2005) indicate that the practice of stakeholder management will
result in higher profitability, stability and growth, and will thus affect firm performance. Good
corporate governance must focus on creating a feeling of security that a company will consider

32. 24
the interests of stakeholders, as the board of directors is responsible for the company as well as
its stakeholders.
2.7 Banking Sector Performance
Research on the determinants of bank profitability focused mainly on the returns on equity and
bank assets, and net interest rate margins. It has traditionally explored the impact on bank
performance of bank-specific factors, such as risk, market power, and regulatory costs.
Bank-specific determinants
Credit risk is the main source of bank-specific risk in is credit risk leading to high non-
performing loans. Banks are mainly exposed to credit risk by weak legal environments, , poor
enforcement of creditor rights, and a lack of sufficient information on borrowers. At the
macroeconomic level, weak economic growth adds to risk as it promotes the deterioration of
credit quality, and increases the probability of loan defaults. The ratio of loans to deposits and
short term funding is mainly used to measure credit risk in banking. This provides a forward-
looking measure of bank exposure to default and asset quality deterioration.
The other important proxy for the overall level of risk undertaken by banks is the bank activity
mix. This considers the extent that different sources of income are characterized by different
credit risk and volatility. The activity mix is measured with the ratio of net interest revenues
over other operating income. Interest earning activities are generally regarded as riskier than
fee based activities, which would need to be rewarded by higher returns. It is stated that banks
that rely on deposits for their funding are less profitable, due to the required extensive branch
network, and other expenses that are incurred in administering deposit accounts.
In line with the CAMELS framework capital adequacy is an important variable in determining
bank performance. In imperfect capital markets, well capitalized banks need to borrow less in
order to support a given level of assets, and tend to face lower cost of funding due to lower

33. 25
prospective bankruptcy costs. Also, in the presence of asymmetric information, a well-
capitalized banks could provide a signal to the market that a better-than-average performance
should be expected (Athanasoglou et al., 2005). Well capitalized banks are, in this regard, less
risky and profits should be lower because they are perceived to be safer. In this case, we would
expect to observe a negative association between capital and profits. It is stated that there is a
positive relationship between capital and bank profitability, reflecting the soundness of the
financial system (Athanasoglou, et al.2005). Likewise, Berger (2005) finds positive causation
in both direction between capital and profitability.
Measures of Bank Profitability
Measures of after-tax rates of return, such as the return on average total assets (ROA) and the
return on total equity (ROE), are widely used to assess the performance of firms, including
commercial banks. Bank regulators and analysts mainly use ROA and ROE to assess industry
performance and forecast trends in market structure as inputs in statistical models to predict
bank failures and mergers and for a variety of other purposes where a measure of profitability
is desired.
The most important profitability ratio from an investor’s viewpoint is the return on equity
(ROE) ratio. It is often called ROI, return on investment ratio, because it indicates the annual
rate of return to the firm’s investors or owners. Return on equity represents the residual return
that is available to owners after deducting all other financing costs.
The return on assets (ROA) ratio indicates the rate of return on the firm’s assets. It can be used
to compare rates of return with alternative investments that could be undertaken.
Return on Total Assets

34. 26
The ratio of net income to total assets measures the return on total assets (ROA) after interest
and taxes. It is a ratio of income to its total assets and measures the ability of an organization’s
management to generate income by utilizing company assets at their disposal.
ROA=Net income available to common stockholders/Total asset
Return on Common Equity
Ultimately, the most important, or “bottom line,” accounting ratio is the ratio of net
income to common equity, which measures the return on common equity (ROE). It is a
financial ratio that refers to how much profit a company earned compared to the total amount
of shareholder equity invested or found on the balance sheet. ROE is what shareholders look
in return for their investment.
ROE=net income available to common stockholders/common equity
2.8 Corporate Governance and Performance
It is important to note that good corporate governance is most likely to lead to improved
corporate performance by reducing risk of investors and ensuring better decision-making. In
this regard, the firm’s value may respond instantaneously to news indicating better corporate
governance. However, quantitative evidence supporting the existence of a link between the
quality of corporate governance and firm performance is relatively scanty (Imam, 2006). Good
governance means shareholders and managers are putting the corporate resources to good use
hence leading to improved performance. As potential stakeholders aspire to invest in firms
with good governance, they are likely to enjoy lower costs of capital, which is a source of better
firm performance. Other key stakeholders, such as employees and suppliers, also aspire to be
associated with and enter into business relationships with organizations that exhibit good
governance, as the relationships are likely to be more prosperous, long lasting than those with
firms with less effective corporate governance. It is therefore essential to appreciate that

35. 27
upholding the principles of good corporate governance is essential for good corporate
performance.

36. 28
CHAPTER 3: RESEARCH METHODOLOGY
3.1 Introduction
This chapter describes the research methodology of this study. This chapter is based on the
definition of research which implies that the research process;
a. is undertaken within a framework of a set of philosophies (approaches);
b. uses procedures, methods, and techniques that have been tested for validity and
reliability; and
c. is designed to be unbiased and objective.
Adherence to the three criteria mentioned above enables the process in this context to be called
a “research”. As such the research methodology used in exploring the relationship between
corporate governance and performance in the Zimbabwe banking sector is described. This
section also defines the geographical area of the study, the study design, population and sample.
The data collection instruments including the methods adopted to maintain validity and
reliability of the instruments are also described.
3.2 Research Description
The research used an interpretive epistemology to examine the relationship between corporate
governance and bank performance in Zimbabwe. Interpretivism comes from phenomenology
and symbolic interactionism. The interpretivist philosophy was chosen because there are
multiple variables to be understood and all impact corporate governance and bank performance.
There was also need for the researcher to be deeply involved in the research, and data is mostly
qualitative, that is, spoken word and documents. The researcher adopted a subjectivist
ontological position because reality is socially constructed from the perceptions and consequent
actions of respondents. There are also multiple variables that affect the relationship between

37. 29
corporate governance and bank performance. The uniqueness of banks and the large number
of bank stakeholders also necessitated the adoption of the subjectivist position.
According to Kumar 1999, there are three perspectives that can be used to classify the kind of
research that is performed: the application of the research study, the objectives in undertaking
the study and the type of information being sought. Pure research or fundamental research is
undertaken for academic interest or to increase understanding of fundamental principles only
and has no practical implications, while applied research tries to apply the existing theoretical
knowledge to a particular issue or problem. According to this researcher, this research is both
exploratory and explanatory. It applies the theory of the relationship between corporate
governance and performance in the Zimbabwean banking sector and therefore has also an
inclination towards being applied research. This study is exploratory since the research is
performed to investigate the undertaking of a larger study in future. In the case of exploratory
research, a small-scale research is undertaken to decide if it is feasible to do a detailed
investigation.
3.3 Research Approach and Design
Both exploratory and explanatory methods of research were adopted for this study. The
emphasis is on describing the nature or condition and the degree of relationship between
corporate governance and performance in Zimbabwe rather than on judging or interpreting the
financial statements of the banks under study. The researcher used this kind of research to
obtain first hand data (exploratory) from the respondents so as to formulate (explanatory)
rational and sound conclusions and recommendations for the study. A qualitative approach was
predominantly adopted, followed over by the quantitative approach. This was because social
constructivist is considered to be an integrated perspective. The research used qualitative
methods in the form of case studies to create an in-depth and rich account with regards the
relationship between corporate governance and bank performance. The quantitative method

38. 30
was used to determine the generalization of the results to other banks in Zimbabwe and banking
markets similar to the Zimbabwean market.
Quantitative Approach
Contrary to the qualitative method, the quantitative approach is centred on the quantification
of relationships between variables. The quantitative approach helps prevent bias in gathering
and presenting research data.
Qualitative Approach
Qualitative research refers to “a form of social enquiry that focuses on the way people interpret
and make sense of their experience and the world in which they live”. “Qualitative approach
generates verbal information rather than numerical values” (Polgar and Thomas, 1995). Due to
the exploratory and explanatory nature of the research, surveys were used. “A survey obtains
information from a sample of people by means of self-report, that is, the people respond to a
series of questions posed by the investigator” (Polit and Hungler 1993). In this study the
information was collected through self-administered questionnaires and interviews distributed
personally to the sample bank representatives of the three banks under study in Zimbabwe.
The survey approach was selected because it offers an accurate description of the
characteristics, such as opinions, beliefs, behaviour, experiences, and knowledge of the
situation being researched. This design was applied to meet the objectives of the study as spelt
out in Chapter 1. “Research design refers to a tool for undertaking a study with extreme control
over factors that may interfere with the validity of the findings” (Burns and Grove 2003). Polit
et al (2001) defines research design as ‘the researcher’s overall technique for answering the
research questions or testing the research hypotheses.

39. 31
3.3 The Population and Study Sample
According to Burns and Grove, a population is defined as all elements that meet the sample
criteria for inclusion in the reserach. Targeted population consists of all Zimbabwean banks as
per the banking sector architecture by the Reserve Bank of Zimbabwe. A sample frame of
commercial and merchant banks was then selected from the total population. A sample frame
refers to a list of all people or units in the population from which a sample can be chosen.
A sample is “a proportion of a population” (Polit et al (2001). To achieve pertinent
information, certain inclusion criterion was imposed. The participants who qualified for sample
selection were bankers. This qualification ensured that the participants understand corporate
governance in Zimbabwe. The respondents were selected from the (3) commercial banks under
study. A carefully selected sample can provide data representative of the population from
which it is drawn. The three commercial banks under study are categorised as follows: Foreign-
owned bank (BancABC), Indigenous bank (Metropolitan Bank) and closed bank (ReNaissance
Merchant Bank).
The sampling process in this study involved:
 Multi-stage cluster sampling for banks. First, the banks were divided into foreign-
owned and indigenous banks. Secondly, the banks were divided into operating and
closed banks.
 Purposive sampling was then applied on each cluster in view of the availability of
information.
Respondents were then selected using stratified sampling in which the following stratums were
developed: Shareholders, Board of Directors, CEO, Audit Committee, Management and Staff.
Purposive sampling was adopted on management and the following key bank departments were
studied: Treasury, Finance, Corporate Banking, Strategy and Business Development, Retail

40. 32
Banking, Risk and Compliance, Human Resources, Legal and Corporate Services, and
Operations.
Simple random sampling was used on staff with the assistance of the Human Resources
Management of each bank.
The research used three questionnaires and interviews to gather data from bank representatives.
The questionnaires were distributed as follows:
Research instrument Respondents (number)
Questionnaire 1: Shareholders, Board of
Directors and CEO
10
Questionnaire 2: Management 48
Questionnaire 3: Staff Satisfaction 50
Interview 5
A valid research study is one that finds the truth. Internal and external validity components
were used to ensure the study sample and population give valid data. External validity is based
on the adequacy of the sample. If the sample is representative of the desired population then
results will generalize. This researcher ensured generalization by first defining the study
population and then employed judgmental sampling method. Judgmental sampling is a non-
probability sampling technique where the researcher selects units to be sampled based on their
knowledge and professional judgment. This type of sampling technique is also known as
purposive sampling and authoritative sampling. As a result three commercial banks namely
BancABC, Metropolitan Bank and ReNaissance Merchant Bank were chosen. Internal validity
on the other hand refers to the adequacy of the research design and the degree of control
exercised in data gathering.

41. 33
3.4 Data Collection and Analysis
3.4.1 Primary Data Collection instruments
A research instrument is “a tool used to collect data, or designed to measure knowledge,
attitudes and skills” (Parahoo 1997).
Questionnaires and Interviews
Questionnaires and interviews were used as data collection instruments. A questionnaire is a
printed or e-mailed self-report form designed to elicit information that can be obtained through
the written responses of the subjects. The information obtained through a questionnaire is
similar to that obtained by an interview, but the questions tend to have less depth.
Questionnaires were preferred basing on the following characteristics as specified by Brink
and Wood 1998:
 Each participant enters hisher responses on the questionnaire, saving the researcher’s
time.
 It is less expensive than conducting personal interviews.
 Respondents feel that they remain anonymous and can express themselves in their own
words without fear of identification.
 Data on a broad range of topics may be collected within a limited period.
 The format is standard for all subjects and is independent of the interviewer’s mood.
Three questionnaires were designed and presented to the bank representatives in Harare. The
three questionnaires were as follows:
 Questionnaire 1: Shareholders, Board of Directors and CEO Evaluations

42. 34
 Questionnaire 2: Management Questionnaire
 Questionnaire 3: Staff Satisfaction Survey
The management questionnaire was distributed to three representatives from the following
bank divisions: Corporate Banking, Retail Banking, Operations, Finance, Treasury, Risk
Management, Legal and Human Resources. Sample questionnaire is as attached on the
appendices section. Both open ended and close-ended questions were asked. Open-ended
questions were included because they allow respondents to respond to questions in their own
words and provide more detail. Since they are easier to analyse and administer closed-ended
questions were included in this study. Also, closed-ended questions are more efficient in the
sense that a respondent is able to complete more closed-ended items than open-ended items in
a given period of time (Polit and Hunger 1993:203).
Interviews are one-on-one, probing discussions between a trained research and a respondent.
This study used unstructured interviews in order to discover much more about the interviewee
by what they say and think. This allowed the researcher to gain considerable insight from each
respondent and was useful for understanding unusual behaviours. However, results were highly
dependent on researcher’s interpretation.
The researcher also utilized unstructured dialogue to gain unique insights from enthusiasts and
cover sensitive topics.
3.5.2 Secondary Data Collection
Desk research was adopted to gather quantitative data, utilizing archives, records, and
publications from the selected banks. The researcher approached each of the selected banks in
person to gather the required data. Secondary data was also utilized on ReNaissance Merchant
Bank as a closed bank.

43. 35
3.5 Reliability and Validity
3.5.1 Reliability
This measures the degree of consistency to which any given instrument measures the attribute
it is designed to measure. Data collection bias was highly minimized to ensure reliability. To
try and minimize the bias, the researcher administered the questionnaires personally and
standardizing conditions such as exhibiting similar personal attributes to all respondents, such
as friendliness and patience. Environmental comfort was ensured through upholding privacy,
confidentiality and avoiding general physical discomfort.
3.5.2 Validity
This measures the extent to which a research instrument measures what it is intended to
measure, that is, does the research instrument allow you to hit “the bull’s eye” of the research
object? Questions were based on information gathered during the literature review to ensure
that they were representative of what the study intends to achieve.
3.6 Data Analysis
After data collection, the data was organized and analysed. For analysis of quantitative data, a
computer programme SPSSwill be used. The following will be used to arrange and analyse
data in the next chapter:
 Tables
 Pie Charts
 Figures
 Graphs

44. 36
3.7 Conclusion
This chapter described the research methodology, including the population, sample data
collection instruments as well as strategies to ensure the ethical standards, reliability and
validity of the study. The research findings are then discussed in the next chapter.

45. 37
CHAPTER 4: DATA ANALYSIS AND PRESENTATION
4.1 Introduction
This chapter presents an analysis of the results obtained from the study of corporate governance
and performance in the Zimbabwean banking sector. A case study approach of three banks
namely BancABC, Metropolitan Bank and ReNaissance Merchant was adopted. These results
were obtained from 68 questionnaires that were distributed and interviews that were carried
out during the research study period. The research used an interpretivist-subjectivist paradigm
in data gathering.
4.1.1 Description of sample data and response rate
Data for this study were collected from two sources. The first sample provided the primary data
that were collected by survey questionnaire and interviews. The second database was the
secondary data which were collected from the bank’s annual reports, banking sector surveys,
liquidator reports, newspapers and internet sources.
Response Rate
Below is a table showing the response rate on the distributed questionnaires. The response rate
was greatly enhanced by the introductory note on each questionnaire which clearly stated the
purpose of the study. Respondents were also given ample time to respond to the questionnaires.
Table 1: Response Rate
Group Population-(n) Responses % response rate
68 64 94%
Shareholders 10 8 80%

46. 38
Chief Executive Officers 2 2 100%
Board of Directors 6 5 83.33%
Audit Committee 6 6 100%
Management 14 13 83.33%
Staff 30 30 100
4.2 Demographic Analysis
This study protected the privacy data of the respondents who played important roles in
Zimbabwean financial institutions and markets; they are CEOs, board directors, independent
directors, auditors, and shareholders of the banks studied. The presentation of profiles of the
respondents including name, address, gender, age, education and income were aggregated in
order to protect their confidentiality because the disclosure of the profiles matter with the
privacy law. Demographic analysis is presented in three characteristics as follows.
4.2.1 Respondent Positions in banks
The table below shows the distribution of the positions of respondents. The largest group,
44.1% of overall respondents, was employees.The second largest population was management
comprising 20.6%. Next, bank shareholders were 14.8%. Independent directors and audit
representatives were each 8.8%. CEOs of the banks were 2.9%.

47. 39
Table 2: The distribution of the frequency and percentage of respondents
Positions Frequency Percentage
Shareholder 10 14.8%
CEO 2 2.9%
Director 6 8.8%
Management 14 20.6%
Auditor 6 8.8%
Employees 30 44.1%
Total 68 100%
4.2.2 Respondent levels of education
The table below shows the distribution of the respondents’ level of education. There is a
favorable level of education position amongst BancABC than Metropolitan Bank. It was noted
that some of the qualifications especially amongst management and employees within
Metropolitan Bank were not banking related. Some of the board members within Metropolitan
Bank are related parties and therefore are not independent non-executive directors.
Table 3: The levels of education percentage distribution
Position Diploma Bachelor Masters Doctoral
BancA
BC
METB
ANK
BancA
BC
METB
ANK
BancA
BC
METB
ANK
BancA
BC
METB
ANK
Sharehol
der
- - 5% 20% 90% 80% 5%
CEO - - - - 100% 100% - -
Director - - 20% 60% 80% 40% - -

48. 40
Manage
ment
- 20% 15% 60% 85% 20% - -
Auditor - - - 10% 100% 90% - -
Employ
ees
- 30% 25% 60% 75% 10% - -
Secondary data analysis of ReNaissance Merchant Bank indicated that the qualifications of
most of the board members were not consummate with the operations of a bank. For instance
it is recommended by the principles for Corporate Governance in Zimbabwe that the chairman
must be a lawyer, while the board was served by a holder of a Master in Business
Administration. The same is the case at Metropolitan Bank.
4.1.1 Shareholder Analysis
The shareholder analysis dealt with the identification and discovery of whether shareholders in
each of the banks under study get their rights and responsibilities or not according to the best
practice. This was necessitated by the agency theory tensions, hence the need to align the
interest of shareholders to maximize wealth.

49. 41
The results indicate a favorable position in terms of shareholder issues within BancABC. The
majority of respondents within BancABC indicated that shareholders within the bank were
practicing their rights and actively participated in shareholders meetings. Shareholders within
BancABC according to the questionnaire results strongly prohibited inside trading as compared
to those within Metropolitan Bank.
Content analysis of ReNaissance Merchant Bank indicated that the shareholding structure at
the bank was chameleon-styled in nature as it camouflaged the true identity of the beneficiary
shareholders.
Respondents from Metropolitan Bank indicated the need to protect minority shareholder rights
and enhancing shareholder activism should be prioritized. It was stated that inside trading has
led to the current crisis at the bank and as such must be strongly prohibited.
The study results therefore indicate that there is a positive relationship between bank
performance and its shareholders’ exercise of rights. The respondents from BancABC indicated
that the success of the bank is necessitated partly by the fact that its shareholders receive timely
0%
20%
40%
60%
80%
100%
120%
BancABC
Metropolitan Bank
Figure 1: Shareholder Analysis
Figure 1: Shareholder Analysis

50. 42
and accurate information on the banks performance and as such make informed decisions give
the fast paced business environment as a result of globalization.
4.1.2 Board of Directors Analysis
This section was aimed at examining the level of effectiveness of shareholders meetings and
the level of independence of the board of directors and their impact on bank performance.
Boards of directors are responsible for monitoring managers, exercising control on behalf of
shareholders and improving the protection of shareholders especially minority shareholders.
Banc ABC
According to the respondents the roles and responsibility within BancABC are clearly stated
and its board members are well qualified and diverse. Though a significant number of
respondents indicated that the bank’s strategy is successfully communicated to stakeholders
management felt the board was not doing enough reading from the current restructuring
exercise which highly ivory tower. The respondents further indicated that the board members
are not in any way affiliated with a significant customer or supplier. As a result of the diversity
0%
20%
40%
60%
80%
100%
120%
Extremely
Significantly
Moderately
Slightly
Not at all
Figure 2: Board of Directors Analysis-BancABC
Figure 2: Board of Directors Analysis-BancABC

51. 43
and qualifications of the board members it was indicated that the board members stay abreast
of issues and trends which could affect strategic or business plans of the bank as indicated by
the innovative products the bank is offering.
Metropolitan Bank
Respondents at Metropolitan Bank indicated that the current demise at the bank was as a result
of the ineffectiveness of the board of directors. Though roles were clearly stated as per the
requirement of the Reserve Bank of Zimbabwe bank strategy was not being communicated
properly and the board members are affiliated to the customers and suppliers. It was further
indicated that the board members were not adequately qualified to make informed decisions
regarding the bank’s strategic direction.
At ReNaissance Merchant Bank it was noted that the directors awarded themselves unbridled
powers to influence decision making and the day to day operations of the bank. Inside trading
was so rampant as the directors disbursed colossal loans to friends and relatives. The situation
was rescued by the Reserve Bank firing the bank’s directors in order to protect the depositors
0%
20%
40%
60%
80%
100%
120%
Extremely
Significantly
Moderately
Slightly
Not at all
Figure 3: Board of Directors Analysis-Metropolitan Bank
Figure 3: Board of Directors Analysis-Metropolitan Bank

52. 44
and financial system. The same issues that affected ReNaissance Merchant Bank were reported
at Metropolitan Bank during this research. It was therefore indicated that there is need to
strengthen the role and effectiveness of shareholders meetings.
4.1.3 Audit Committee Analysis
Audit committee independence was used as a corporate governance mechanism in this study.
It is mostly measured as the number of independent members to the total number of audit
committee members in the bank’s board. The Audit Committee is one of the important
committee of the board of directors. Both banks under study had the Audit Committee as it is
a requirement for every banking institution. Respondents from both BancABC and
Metropolitan Bank indicated the following functions as key to the audit function:
 to monitor the integrity of the financial statements of the bank;
 to review the bank's internal financialcontrolsystem;
 tomonitorandreviewtheeffectivenessofthe bank'sinternal audit function; and
 to monitor and review the external auditor's independence, objectivity and
effectiveness.
BancABC
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Not at all
Slightly
Moderately
Significantly
Extremely
Figure 4: Audit Committee Analysis-BancABC
Figure 4: Audit Committe Analysis-BancABC

53. 45
Results from BancABC indicated that the audit committee discharges its roles effectively and
is highly independent. Some respondents highlighted that the committee was not receiving
relevant information as was seen in 2003 when the bank lost a number of its assets as a result
of audit inefficiencies. It was highlighted that the audit committee meets regularly with internal
and external auditors to ascertain whether the auditors have had disagreements with
management and how these disagreements have been resolved.
The audit committee at BancABC also reviews with the auditors whether all the systems and
procedures are adequate and whether there are any material systems and controls that need
strengthening. The bank highlighted the following attributes as key to the success of the bank’s
audit function: independence, expertise and audit committee policy.
Metropolitan Bank
Results from Metropolitan Bank indicated that the audit function had some inefficiencies which
are negatively affecting the performance of the bank. It was indicated that the scope of internal
0%
10%
20%
30%
40%
50%
60%
70%
80%
Not at all
Slightly
Moderately
Significantly
Extremely
Figure 5: Audit Committee Analysis-Metropolitan Bank
Figure 5: Audit Committee Analysis-Metropolitan Bank

54. 46
audit within Metropolitan Bank was too narrow to improve efficiency within the bank.
Respondents indicated there was more of compliance rather that commitment to the internal
audit function. The internal audit department was not effective as it was independent in its
operations. Respondents indicated that internal auditors at the bank lacked the ability to report
all deficiencies without fear of reprisal by management. At ReNaissance Merchant Bank the
Reserve Bank had to fire the Head of Internal Audit when the bank crisis occurred. Respondents
at Metropolitan Bank indicated the need to redefine the contents of the audit report and
developing training programs for audit committee members.
There is therefore a positive relationship between corporate governance audit function and
bank performance as measured by ROA and ROE. The results are in line with the agency theory
perspective, which assumes a significant relationship between audit committee independence
and bank performance. The possible explanation for this result is that the audit committee has
oversight responsibility for preparing the financial statements, reducing the chances of earnings
restatements and improving the credibility and integrity of financial information produced by
the bank by identifying potential fraud in the financial statements. Therefore, the audit
committee increases depositor and investors’ confidence in a bankand ensures the proper
utilization and maximization of the shareholders’ funds. The audit committee monitors
mechanisms that enhance the quality of information between principals and agents, which in
turn helps to minimize agency problems (Rouf, 2011).
According to the agency theory, the independent members of an audit committee can reduce
the benefits from withholding information and assist shareholders in monitoring managers’
activities (Mohamad & Sulong, 2010). The present results support the agency theory, which
suggests that audit committees might mitigate agency problems, leading to reduced agency
costs by aligning the interests of controlling owners with those of the company.

55. 47
4.1.4 Management and Staff Analysis
This research indicated that linking performance to reward is central to managing the agency
conflicts in banks. This is because reward is a motivator that will encourage specific behaviors
or result in higher performance levels. In order to motivate managers, the use of an integrated
performance and reward strategy should be considered, if the organization invest time in
knowing what their real needs are. Financial and non-financial rewards is part of the real needs.
There seems to be so much focus on financial rewards by economists despite the importance
on non-financial rewards. Money represents a generalized claim on resources and is generally
preferred over an equal dollar-value payment in kind. In this research the results from
Metropolitan Bank indicated a focus on monetary rewards as compared to a more balanced
approach at BancABC.
In Maslow’s ‘hierarchy of needs’ theory, economic reward only influences the lower of the
needs and the higher level needs are satisfied by non-economic rewards. Herzberg later
reported on the hygiene factors that impact employee satisfaction and motivation as an
expansion of the Maslow’s theory.
The performance at BancABC was seen to be closely related to its reward structures. It was
also noted that at Metropolitan Bank, bank performance was only measured in accounting
terms and as such ignoring the key non-financial metrics.
Motivation levels were low within Metropolitan bank as employees indicated issues of job
security, recognition, salaries, education and expertise, and conditions of work as the major
factors leading to low motivation. However, at BancABC was considered high because of
favorable pay conditions, job security and education and expertise programs.

56. 48
4.3 Bank Performance
This study revealed that there is a positive relationship between corporate governance practices
in Zimbabwe and bank performance measures of ROE and ROA, and non-economic measures.
The bank performance measures report the efficiency of management in increasing profitability
and the market value of firms in an unstable economic environment such as Zimbabwe. This
confirms the agency theory perspective of the relationship between better governance practices
and firm performance.
Return on Equity
In this study, the variables that were significantly related to ROE during the period under
review in Zimbabwe were corporate reporting practices. Empirically correlation and analysis
of variance reported a significant relationship between corporate reporting and ROE. The other
corporate governance variables such as shareholders, CEO, management, employees and board
of directors committees also have an impact on ROE. The results are in line with Brown and
Caylor (2004) who also observed that better governance is associated with a higher ROE.
Similarly, various other researchers reported enhancements in corporate performance is
measured by Return on Equity indicating compliance with sound corporate governance
practices.
Return on Assets
The present research indicates that shareholders, board of directors and CEO are the variables
that are significantly related to ROA. It was found out that where the asset base is large relative
returns will be poor, confirming that the larger the denominator, the greater the numerator
required to obtain higher profit (Kiel & Nicholson 2003). Kiel and Nicholson also state that if
the size of the assets is controlled, revenue is strongly and positively correlated with ROA.
Relationship between corporate governance and bank performance

57. 49
This study tested the relationship between the implementation of corporate governance
principles and the bank performance in the Zimbabwe. Corporate governance principles were
measured using: rights of shareholders, board of directors, CEO, audit committee, management
and employees responsibilities. According to the stakeholder theory perspective, there is a
significant relationship between the implementation of good corporate governance and firm
performance. Results show a positive relationship between the implementation of corporate
governance and the ROA and the ROE. These results show that the implementation of
corporate governance principles in banks could influence the accounting-based and market-
based measures of bank performance.
Analysis and implication
The present result confirms the findings of Dao (2008), Cheung et al. (2011) and Kalezić
(2012). The previous empirical results show that corporate governance positively affects the
performance and value of listed companies. The results showed that good corporate governance
practices can predict future performance in listed companies. The positive relationship between
bank performance and the implementation of corporate governance principles is in accordance
with the stakeholder theory perspective. The correlation results also confirm that the
implementation of sound corporate governance principles has a positive effect on bank
performance in Zimbabwe because the implementation of corporate governance principles
enables effective monitoring, helps firms to attract investment, raises funds with a low capital
cost, generates long-term economic value and enhances firm performance (Sengur, 2011). The
present results suggest that a key best practice of corporate governance is establishing a clear
relationship between stakeholders and management, as well as considering the interests and
demands of all stakeholders, thereby leading to longer term business. The implementation of
corporate governance principles is vital to good corporate governance in Zimbabwe. Based on
the stakeholder theory, this research revealed a positive association between bank performance

58. 50
and corporate governance principles, which results in the management of relationships with all
stakeholders. The results show that management thatconsider all stakeholders’ interests
reported improvements in their bank’s financial performance as measured by ROE and ROA.

59. 51
CHAPTER 5: SUMMARY; RECOMMENDATIONS AND CONCLUSIONS
5.1 Introduction
This chapter commences with a discussion on the political and economic environment in which
banks operate in Zimbabwe. It also discusses the various strategies banks have used to
counteract the adverse effects of the volatile political and economic environment, which have
resulted in the resilience on the financial services sector and the economy. Findings of the study
are based on various theoretical perspectives and empirical literature on corporate governance
practices. Furthermore, this chapter provides a summary of the conclusions drawn from the
variables of corporate governance and the determinants of bank performance. It also discusses
the relationship of corporate governance practices on bank performance. Finally,
recommendations for the specific code of best practice in banking and the recommendations
for future research are summarized.
The purpose of this study has been to explore the relationship between corporate governance
and performance in the Zimbabwe banking sector. Good corporate governance in Zimbabwean
banks is essential in attracting investments and building depositor confidence. Successfully
attracting investment both local and foreign provides a stimulus to the economy, which results
in increased productivity and growth. Therefore this study used a comparative analysis between
BancABC, Metropolitan Bank and ReNaissance Merchant Bank to investigate the extent to
which corporate governance practices were adopted in Zimbabwe. Significant relationships
between corporate governance practices of shareholder rights, CEO, board of directors,
management, audit and employees, and firm performance were reported in this study. To
achieve the main objective, the study had several specific objectives:
 establish the relationship between corporate governance and performance in the
banking sector.

60. 52
 establish the relationship between directors shareholding and banks performance in
Zimbabwe.
 determine the strength of supervisory measurers put in place to enhance good corporate
governance by the Reserve bank of Zimbabwe.
 analyzethe level of adherence to corporate governance principles by banks in
Zimbabwe.
 give recommendations to stakeholders about sound strategies to improve corporate
governance in order to stimulate banks performance.
In view of the volatile political and economic environment during the period under study, banks
in Zimbabwe were undertaking strategies to mitigate risks by diversification into new products
and new markets and undertaking emergency reassessments of the short-term goals in the
backdrop of a worsening country scenario. One of the factors for the high performance of banks
that operate in this highly volatile environment is their diversification.
The researcher noted that there has been a massive restructuring by most banks during the
period under review with banks embarking on massive retrenchments and downsizing.
5.2 Research Review
The nature of the research was introduced in Chapter 1, which covered the background of the
study, literature review, methodological issues, findings and implications of this study, with
the principles and issues for investigation, research objectives and methodology employed.
Chapter 2 presented the development of corporate governance practice. In particular, this
chapter started with the various definitions of corporate governance and discussed the two main
corporate governance systems as practiced around the world. Further, thechapter reviewed the
historical development of corporate governance. As the literature review section, the chapter
extensively reviewed the previous theoretical and empirical literature relating to this area of

61. 53
study. It outlined the benefits of the implementation of good corporate governance practices,
and the measures of bank performance.
Chapter 3 introduced the methodology employed in this study, which was a predominantly
qualitative research methodology. The data were selected using a questionnaire and interview
instruments that were discussed in detail. Chapter 4 described the results of the data collected
from the questionnaire and interview survey and secondary sources,which were reported in
Chapter 3.
5.3 Conclusions
5.3.1 Bank Performance
The results of this study and the literature report there is a positive relationship between good
corporate governance and performance. It was noted that many bank failures in Zimbabwe are
due to the board’s lack of oversight over company performance in an effective and consistent
manner. This is because the structure of the board, particularly in relation to the structure of
the decision making process which needs to be reformed to enable companies to focus on
sustaining high performance in the face of a rapidly changing environment (Cutting &Kouzmin
2000). Therefore, corporate governance structures must be designed to improve the quality of
monitoring of board decisions (Laing & Weir 1999). It can also be argued that banks with
effective governance practices consisting of the shareholders, board, management and
employees structures are likely to have strategies that will result in long-term sustainability of
the bank.
Furthermore, studies have reported that for governance practices to have a positive effect on
banks’ market value they must result in an increase in shareholders return and satisfy all the
stakeholders. The research indicated that highly performing banks adopt both accounting
measures of ROE and ROE; and non-accounting measures of environmental sustainability,

62. 54
cultural entropy and community development. The funding of social activities by Banc ABC
was mentioned as a contributing factor to its favorable performance.
There is a prevalence of ivory tower planning in mostly indigenous banks in Zimbabwe yet
employees play a crucial role in the governance of banks and the enhancement of bank
performance. The bank failures in Zimbabwe are a result of the prime focus on the long term
issues of the bank yet shunning the day-to-day governance of the institutions to which
employees are critical. In this regard the corporate governance issue must take a holistic
approach in order to ensure improved bank performance.
Bank stakeholders need to be educated on the total measures of bank performance as there is
so much reliance on published accounts as the primary measure. Other key non-economic
measures are not emphasized. The researcher noted that economic performance is a subjective
measure of how ell an organization can use assets from its primary mode of business and
generate revenues.
5.3.2 Relationship between corporate governance and bank performance
The descriptive results of this study indicated a positive relationship between corporate
governance and bank performance in Zimbabwe. With regards to shareholder rights the
research findings indicated that the favorable balance sheet position, ROA and ROE on
BancABC are as a result of the following corporate governance issues:
 the shareholders are able to practice their rights and ask pertinent questions when they
attend shareholder meetings,
 the bank strives to ensure shareholders receive timely and regular information on the
bank,
 the bank strongly prohibits inside trading and abusive self dealing.