Corporate Governance and Firm Performance: Evidence from Ghana
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Corporate Governance and Firm Performance: Evidence from Ghana Written By: Caesar K. Simpson Swiss Management Center University Publisher: Galore Knowledge Publication Pvt. Ltd. www.gkpublication.in Corporate Governance and Firm Performance Corporate Governance and Firm Performance: Evidence from Ghana Caesar K. Simpson Swiss Management Center University Submitted as partial fulfillment of the requirements for the degree of Doctorate of Finance To: Professor John Marangos February 2016 Galore Knowledge Publication Pvt. Ltd. (www.gkpublication.in) 1 Corporate Governance and Firm Performance ABSTRACT The study investigated whether there exists a relationship between corporate governance and firm performance of listed firms on Ghana Stock Exchange. The study constructed a corporate governance index (0~100) using all the six OECD principles of corporate governance as independent sub-variables for 30 of the 36 listed companies, relying primarily on survey responses and secondary data. Using regression and correlation analyses, the study reported evidence that corporate governance is an important factor in explaining the performance of listed companies on Ghana Stock Exchange. The study revealed a strong positive correlation between the overall corporate governance index and firm performance measured in terms of ROA, ROE and Tobin’s Q which were robust with the results of the regression analyses. All the six OECD principles of corporate governance that constituted the index, individually showed strong positive correlation with the three performance variables. The study further investigated whether there exists a relationship between the corporate governance framework of Ghana and the OECD principles of corporate governance. The results indicated a very robust relationship between the two frameworks. The study made use of control variables that were not previously used in other studies on Ghana. The combined control variables also correlated positively with the performance variables and were statistically significant. Key words: Corporate governance, firm performance, Ghana Stock Exchange, OECD principles of corporate governance, corporate governance index, corporate governance framework of Ghana. Galore Knowledge Publication Pvt. Ltd. (www.gkpublication.in) 2 Corporate Governance and Firm Performance Declaration - Signature “I declare in lieu of an oath that I have written this doctoral thesis by myself, and that I did not use other sources or resources than stated for its preparation. I declare that I have clearly indicated all direct and indirect quotations, and that this thesis has not been submitted elsewhere for examination purposes or publication.” _________________________________ (Date / Name) Galore Knowledge Publication Pvt. Ltd. (www.gkpublication.in) 3 Corporate Governance and Firm Performance Dissertation Committee – Signature I certify that I have read this dissertation and that, in my opinion, it is fully adequate in scope and quality as a doctoral thesis. ______________________________ (Date / Name) I certify that I have read this dissertation and that, in my opinion, it is fully adequate in scope and quality as a doctoral thesis. ________________________________ (Date / Name) I certify that I have read this dissertation and that, in my opinion, it is fully adequate in scope and quality as a doctoral thesis. ___________________________________ (Date / Name) Galore Knowledge Publication Pvt. Ltd. (www.gkpublication.in) 4 Corporate Governance and Firm Performance ACKNOWLEDGEMENTS First and foremost, I wish to register my profound gratitude to the Almighty God for making this long awaited dream come through. I am very grateful to my mentor, Professor John Marangos, for the immense interest he has shown in the study and for his meticulous guidance and incredible support. My acknowledgement also goes to Marilyn Baker, SMC University Research Director, SMC University Dissertation Committee, and all my course professors for their individual key roles played during the course of this course. Furthermore, I extend my acknowledgement to my former employer Gold Coast Securities Limited, Mr Harrison Afeku of Gold Coast Fund Management Limited, Ghana Stock Exchange and Mrs Eileen Owusu of Ghana Stock Exchange for their respective assistance in collection of both primary and secondary data. Lastly, but not the least, I am very grateful to my dear and loving wife Rev. Mrs Eunice Simpson and our children Jayden Simpson and Jessica Simpson for their utmost support and encouragement. Galore Knowledge Publication Pvt. Ltd. (www.gkpublication.in) 5 Corporate Governance and Firm Performance Table of Contents Abstract………………………………………………………………………………………..2 List of Figures ………………………………………………………………………………....7 List of Tables…………………………………………………………………………………..8 List of Abbreviations…………………………………………………………………………..9 List of Appendices……………………………………………………………………………10 Dedication……………………………………………………………………………………11 Chapter 1: Overview…………………………………………………………………………12 Problem Statement…………………………………………………………………...12 Purpose of Research………………………………………………………………….13 Significance of the Study…………………………………………………………….13 Research Design……………………………………………………………………...15 Research Questions and Hypotheses…………………………………………………18 Assumptions and Limitations………………………………………………………...19 Operational Definitions………………………………………………………………20 Summary……………………………………………………………………………..21 Chapter 2: Literature Review………………………………………………………………...22 Theoretical Orientation for the Dissertation………………………………………….22 Critique of Previous Research………………………………………………………..32 Synthesis of Research………………………………………………………………...50 Summary……………………………………………………………………………..53 Chapter 3: Methodology……………………………………………………………………...54 Research Design……………………………………………………………………...54 Research Questions and Hypotheses…………………………………………………63 Population and Sampling Strategy…………………………………………………...64 Research Instrument………………………………………………………………....65 Data Collection Procedures…………………………………………………....…….68 Data Analyses………………………………………………………………………...69 Summary……………………………………………………………………………..69 Chapter 4: Analysis and Presentation of Results…………………………………………….70 Demographic Statistics……………………………………………………………....70 Details of Analysis and Results………………………………………………………71 Summary of Results……………………………………………………………….....83 Chapter 5: Conclusions and Recommendations……………………………………………..85 Summary of the Results……………………………………………………………...85 Discussion of the Results………………………………………………………….....88 Conclusions and Practical Recommendations……………………………………....101 Recommendations for Further Research……………………………………………102 References…………………………………………………………………………………..102 Appendices………………………………………………………………………………….112 Galore Knowledge Publication Pvt. Ltd. (www.gkpublication.in) 6 Corporate Governance and Firm Performance List of Figures Figure 1. Ghana Country Assessment vs. Africa Regional Average.......................................46 Figure 2. Individual Effect Sizes.............................................................................................52 Figure 3. Research 'onion'........................................................................................................54 Figure 4. Distribution of firms.................................................................................................70 Galore Knowledge Publication Pvt. Ltd. (www.gkpublication.in) 7 Corporate Governance and Firm Performance List of Tables Table 1 Synthesis of sampled of literature reviewed................................................................51 Table 2 Major differences between deductive and inductive approaches……........................55 Table 3 Reliability statistics test for the data instrument of the study ……………………....67 Table 4 Sample Demographics: Gender …………………………………………………....70 Table 5 Sample Demographics: Position in the Firm ……………………………………....70 Table 6 Sample Demographics: Respondents’ Educational Level……………………….....70 Table 7 Sample Demographics: Industry................................................................................70 Table 8 Sample Demographics: Market Capitalization (US$ Million - 2013) .......................71 Table 9 Sample Demographics: Revenue (Sales) (US$ Million - 2013) ……………….........71 Table 10 Sample Demographics: Number of Employees (2013) ……………………………71 Table 11 Sample Demographics: Listing Age …………………………………………...…..71 Table 12 Descriptive Statistics …………………………………………..…………………..71 Table 13 Regression Coefficients – ROA as performance measure……………….......……..72 Table 14 Regression Statistics – Model Summary (ROA as a measure of performance)…....73 Table 15 Regression Coefficients – ROE as performance measure ………………................74 Table 16 Regression Statistics – Model Summary (ROA as a measure of performance).......75 Table 17 Regression Coefficients – Tobin’s Q as performance measure ……………….......75 Table 18 Regression Statistics–Model Summary -Tobin’s Q as a measure of performance...76 Table 19 Correlations Analysis - Corporate governance and firm performance …………...77 Table 20 Correlation Analysis - Ensuring a basis for an effective corporate governance framework (VAR 1) and firm performance ……………………………...............................77 Table 21 Correlation Analysis - the rights of shareholders (VAR 2) and firm performance...78 Table 22 Correlation Analysis - fair and equal treatment of shareholders (VAR 3) and firm Performance ……………………………….............................................................79 Table 23 Correlation Analysis - stakeholders in corporate governance (VAR 4) and firm Performance