Corporate Governance and Efficiency of Rural and Community Banks (RCBs) in Ghana

Eric Fosu Oteng-Abayie; Anthony Affram; Henry Kofi Mensah

doi:10.33119/ERFIN.2018.3.2.2

Eric Fosu Oteng-Abayie Department of Economics, Kwame Nkrumah University of Science and Technology, Ghana http://orcid.org/0000-0002-4598-2066
Anthony Affram School of Business, Kwame Nkrumah University of Science and Technology, Ghana
Henry Kofi Mensah School of Business, Kwame Nkrumah University of Science and Technology, Ghana

DOI: https://doi.org/10.33119/ERFIN.2018.3.2.2

Keywords: Data Envelopment Analysis, Technical Efficiency, Corporate Governance, Rural Banks, Ghana

Abstract

Corporate governance crises that occur in the banking sector normally cripple economies and bring many hardships to individuals, corporate entities, communities, and the nation at large. In this study, we sought to examine the level of technical efficiency and productivity growth of rural and community banks (RCBs) and the impact of corporate governance indicators on the RCBs' efficiency performance in Ghana. A sample of 70 out of 140 RCBs was selected based on the ARB Apex Bank's performance ratings and data availability. Data envelopment analysis (DEA) was used to determine the technical efficiency scores of the selected RCBs. In the second stage of the analysis, these computed efficiency scores were regressed on the corporate governance variables to assess the effects of the latter. The findings from the DEA approach show that 11% to 20% of the sampled RCBs in Ghana operate close to the efficiency frontier, whereas the majority - about 65% to 81% - underperformed within the study period of 2007 to 2013. The study further established that the number of board members, frequency of board meetings, and corporate social responsibility have significant influence on RCB efficiency.

Author Biography

Eric Fosu Oteng-Abayie, Department of Economics, Kwame Nkrumah University of Science and Technology, Ghana

Eric is a Senior Lecturer in the Department of Economics at KNUST, Ghana. He has experience in management consulting. He has published articles in the area of financial economics, macroeconomics, and research methods. Eric's current research focus economics, of labour, energy, health, and development issues. As a lecturer, he teaches Labour Economics, Mathematical Economics, Research Methods, and Advanced Macroeconomics.

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