Bank risk, corporate governance and bank performance in Africa

Kyei, Simms Mensah (2019) Bank risk, corporate governance and bank performance in Africa. Doctoral thesis (PhD), Manchester Metropolitan University.

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Abstract

This thesis contains the findings of the empirical studies of the relationship between bank risk, corporate governance and bank performance in Africa. Specifically, using a sample of 635 banks from 48 countries in Africa (a total of 10795 firm-year observations) and corporate governance data collected directly from banks annual report, the thesis seeks to examine whether there is a relationship between bank risk and bank performance, whether there is a relationship between corporate governance and bank risk, whether there is a relationship between corporate governance and bank performance, and whether corporate governance moderate the relationship between bank risk and bank performance. Firstly, using Generalised Method of Moments (GMM) technique, the result suggests that bank risk, measured by Loan Loss Provisions to Net Interest Revenue (LLPNR) has negative relationship with both accounting measures, Return on Assets (ROA) and Return on Equity (ROE). However, bank risk, measured by Loan Loss Reserve to Gross Loan (LLRGL) is insignificantly negative related to both Return on Assets (ROA) and Return on Equity (ROE). Secondly, the result based on bank risk and corporate governance is mixed. Board size is insignificantly negative related with Loan Loss Provisions to Net Interest Revenue (LPNR) and significantly negative related with Loan Loss Reserve to Gross Loan (LLRGL). Duality is significantly negative related with Loan Loss Provisions to Net Interest Revenue LLPNR and insignificantly negative related with Loan Loss Reserve to Gross Loan (LLRGL). Board meeting is significantly negative related with Loan Loss Provisions to Net Interest Revenue (LLPNR) and significantly positive related with Loan Loss Reserve to Gross Loan (LLRGL). Female directors is significantly negative related with Loan Loss Provisions to Net Interest Revenue (LLPNR) and significantly positive related with Loan Loss Reserve to Gross Loan (LLRGL). Finally, independent directors is insignificantly positive related with Loan Loss Provisions to Net Interest Revenue (LLPNR) and significantly negative related with Loan Loss Reserve to Gross Loan (LLRGL). Thirdly, the result based on corporate governance and bank performance is mixed. Board size and board meetings have significant and negative impact on Return on Assets (ROA) and Return on Equity (ROE). Duality has insignificant positive impact on Return on Assets (ROA) and significant negative impact on Return on Equity (ROE). Female directors has significant positive impact on both Return on Assets (ROA) and Return on Equity (ROE), while independent directors has insignificant negative impact on Return on Assets (ROA) and significant negative impact on Return on Equity (ROE). Finally, the result suggests that all the five governance variables, board size, duality, board meeting, female directors and independent directors, moderate the relationship between bank risk and bank performance in Africa. Given a dearth of empirical evidence on the relationship between bank risk, corporate governance and bank performance, this study seeks to fill the gap and contribute to the growing literature by providing new evidence on the relationship between bank risk and bank performance, corporate governance and bank risk, corporate governance and bank performance, and the joint effect of corporate governance and bank risk on bank performance.