Impact of corporate governance on financial performance of rural and community banks; evidence from selected rural and community banks in Ghana

Abstract

The study investigated the impact of corporate governance on the financial performance of rural and community banks in Ghana. Specifically, this study examined board size, board composition, bank size, leverage and how they affect the banks financial performance. Banks financial performance was measured using return on assets and return on equity. The research used agency theory and resource dependency theory to explain the concept of corporate governance on financial performance of rural and community banks in Ghana. This study adopted a descriptive research design. Quantitative approach was used, primary data were obtained by administering questionnaires to board members of the selected rural and community banks .Secondary sources were also used to obtain data from the banks published annual reports covering three years (2019 to 2021). The study population was 120 rural and community banks in Ghana. The study further used STATA15 to run the data and multiple regression analysis was applied to determine the magnitude of the correlation and extrapolation of financial performance. The analytical results of the study revealed that there was a strong relationship between corporate governance and the rural and community banks in Ghana’s financial performance. Also board size was found to positively affect the banks financial performance. There was a positive relationship between board composition and the banks financial performance. Furthermore, the study showed that bank size had a positive correlation with the banks financial performance. The study recommended that rural and community banks in Ghana should have board of directors composed of executive and non-executive directors with diversified skills.