An empirical investigation of the relationship between corporate governance and firm performance: evidence from Ghana.

Abstract

This thesis investigates the relationship between corporate governance and firm performance prompted by the Ghanaian Code introduced in 2003. Using a sample of the Ghanaian listed firms from 2000-2009 and the directors of these same firms, the thesis attempts to achieve four specific objectives. The first objective is to measure the degree of compliance with the Ghanaian Code provisions from the Ghanaian listed firms annual reports during the whole, pre 2003 and post 2003 introduction of the code. The second objective is to empirically investigate the relationship between the degree of compliance with the Ghanaian Code and firm performance. The third objective is to empirically evaluate the perceptions of the directors of the Ghanaian listed firms on the adoption of the Ghanaian Code and its benefit to their firms performance. The final objective is to critically examine whether the use of multiple governance data has the potential to affect the research on governance-performance relationship findings. Given the multiple governance data from the Ghanaian listed firms annual reports and the directors responses, the results based on the degree of compliance with the Ghanaian Code suggest a statistically significant improvement from pre 2003 period to post 2003 period. This evidence is supported by the directors responses who noted that the standard of corporate governance has improved in their firms after the introduction of the Ghanaian Code. Also, the regression results based on the annual report data suggest that there is a statistically significant and positive relationship between the Ghanaian corporate governance index (GCGI) and profitability across Ghanaian listed firms, evidence supported by the directors responses who noted that the full adoption of the Ghanaian Code is beneficial to their firms performance. By contrast, the regression results based on the CEO duality, board size, proportion of non-executive directors, audit and remuneration committees suggest either statistically significant or no relationship between each of the five mechanisms and firm performance. These results are not supported in most cases by the directors responses where they showed support for the adoption of these mechanisms except board size as beneficial to their firms performance. Overall, the empirical analysis suggests a consensus between the regression results and the directors opinions on the full adoption of the Ghanaian Code rather than the selective adoption of its specific provisions where there is disagreement. These results raise questions about the effectiveness of the selective adoption of a particular code provision to improve firm performance.