Banks’ Governance, Capital Structure and Performance in Ghana

Abstract

The paper explores the mechanisms through which banks rely on good governance to attract more equity capital towards the improvement of their profitability. The study employed a panel data for twenty-nine commercial banks in Ghana between the years from 2003 to 2015, using the Generalized Method of Moments (GMM), Fixed Effects and Random Effects estimators. The results are robust notwithstanding the estimation method employed, that bank governance affects banks’ performance in Ghana. Larger board size improves return on the banks’ equity just as large proportion of directors with finance expertise induces bank performance. All estimates also show that equity funding has a negative and significant effect on bank performance. The paper also found evidence that good bank governance attracts equity capital which, in turn, induces greater profitability. The study recommends for managers and policymakers of banks to adopt policies that will position the banks to improve governance structure, to improve managerial expertise to drive bank performance. Admonitions to expand bank capitalisation should not be encouraged without recourse to the improvement in bank governance effectiveness.