Corporate Governance and Firm Profitability: A Study of Ghana's Banking Sector

Abstract

Corporate performance stands out as one of the most crucial research considerations in the field of financial management. The elements that have significant impacts on the assessment of such performance can be segregated into two categories, namely micro and macro factors. Organization must therefore consider the benefits accrued, as well as the interests of investors who seek to gain from the capital they invest in the organization since an enterprise can be deemed alluring based not only on its capacity to generate profits, but also on its capability to sustain and augment profits. Adhering to principles and practices of corporate governance constitutes a crucial catalyst for enhancing organizational efficiency and achieving success and therefore this study seeks to examine the moderating effect of financial leverage could have on the correlation that exists between corporate governance and the financial performance of commercial banks in Ghana. The study employed a panel regression models to estimate and ascertain the primary and moderating influences of financial leverage. Results revealed a negative relationship between board size and firm size with profitability (ROA). However, the negative correlation between board size and ROA is significant, while that of firm size is insignificant. Additionally, it is evident that there is a positive and significant relationship between liquidity and profitability in the short term. This study recommends that it would be prudent for the various commercial banks in the country to implement quality corporate governance practices in order to fully realize the benefits associated with good corporate governance practices.