Proceso de planificación del cuestionario:

We conduct additional analysis to test for the relationship between corporate governance and bank risk using Z-SCORE and TIER 1 as risk measures. The results are summarised below and the Tables showing the results are in the appendix.

Using GMM as our main estimation method, we find the following results. The results show that the lag of both Z-score and Tier 1 are significant positive at 1%. The results show that board size has significant positive relationship with Z-score at 1% significant level and insignificant negative relationship with Tier 1. The presence of female directors has insignificant negative relationship with Z-score and significant positive relationship with Tier 1 at 1% significant level. The presence of independent directors has significant positive impact on Z-score and significant negative impact on Tier 1. Both Z-score and Tier 1 are significant at 1% significance levels. Duality has insignificant positive impact on Z-score and significant and positive impact on Tier 1 at 1% significant level. Board meetings has significant negative impact on Z-score and significant and positive impact on Tier 1, both are significant at 1% significant levels.

With regards to the control variables, we report the following findings: Bank size has significant and negative impact on Z-score at 1% significant level and significant and positive impact on Tier 1 at 1% significant level. Equity to assets ratio is significant and positive correlated with Z-score at 5% significant level and significant positive correlated with Tier 1 at 1% significant level. Net loans to asset is insignificant positive correlated with Z-score and significant negative correlated with Tier 1 at 1% significant level. Cost-to-income ratio is significant negative correlated with both Z- score and Tier 1 at 1 % significant levels. Corruption has significant negative impact on Z-score at 1% significant level and significant positive impact on Tier 1 at 1% significant level. The relationship between GDP and Z-score is significant and

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negative at 1% significant level, the relationship between GDP and Tier 1 is negative and insignificant. Finally, 2007/2008 financial crisis has significant positive impact on Z-score at 1% significant level and significant negative impact on Tier 1 at 1% significant level.

7.5 Chapter summary

This chapter has focused on presenting and discussing the empirical results of the relationship between internal corporate governance structures and bank risk of African banks. Specifically, this chapter attempted to find out how different corporate governance characteristics help reduce or increase bank risk in Africa. This chapter addresses hypothesis 2 to 6. Two bank risk measures were used namely, Loan Loss Provision to Net Interest Revenue (LLPNR) and Loan Loss Reserve to Gross Loan (LLRGL). Our independent corporate governance variables used are board size, board meetings, role or CEO duality, female directors and independent directors. Using GMM estimation, we recorded the following findings, board size has significant negative impact on bank risk, measured by LLRGL but insignificant negative impact on bank risk, measured by LLPNR. These results suggest that bigger board is more efficient for African banks in order to reduce bank risk. Board meetings has significant negative relationship with LLPNR and significant positive relationship with LLRGL. The relationship between CEO or role duality and bank risk, based on LLPNR, is found to be significant and negative and insignificant and positive based on LLRGL. Independent directors has significant negative impact on LLRGL and insignificant positive impact on LLPNR. Finally, the results revealed that female directors has significant negative association with bank risk, measured by LLPNR and significant positive association with bank risk, measured by LLRGL. The results show that board characteristics are important factors which determine bank risk levels of African banks.

CHAPTER EIGHT

EMPIRICAL RESULTS OF THE RELATIONSHIP BETWEEN CORPORATE GOVERNANCE AND BANK PERFORMANCE

8 Introduction

This chapter presents the empirical results of the relationship between corporate governance and bank performance. To be specific, this chapter presents the impact that corporate governance characteristics have on bank performance in Africa. In this relationship, our dependent bank performance measures are return on assets (ROA) and return on equity (ROE). Our independent corporate governance variables are board size (BSIZE), board meetings (MEETINGS), role duality (DUAL), presence of female directors (FEMALE) and presence of independent directors (INDEP). We use GMM as our main statistical model and OLS, fixed effect and 2SLS for our robustness analysis. We use GMM as the main estimator due to a number of advantages that go with such technique. These include resolving the problems of endogeneity, unobserved heterogeneity, autocorrelation and profit persistence, which other techniques may not be able to resolve.

To achieve this, two econometric models are used and the results are presented in Tables 15 and 16. Below are the econometric models:

ROAit = β0 + β1SIZEit + β2EQTAit + β3NLTAit + β4COSTit + β5CORit + β6GDPit + β7BSIZEit + β8MEETINGSit + β9DUALit + β10FEMALEit + β11INDEPit + δ0 + εit (7)

ROEit = β0 + β1SIZEit + β2EQTAit + β3NLTAit + β4COSTit + β5CORit + β6GDPit + β7BSIZEit + β8MEETINGSit + β9DUALit + β10FEMALEit + β11INDEPit + δ0 + εit (8)

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Table 15: Results of corporate governance and bank performance using ROA as performance measure

MODEL (1) (2) (3) (4)

VARIABLES OLS Fixed effect 2SLS GMM

BSIZE -0.0551*** 0.0112 0.00437 -0.0397*** (0.0204) (0.0307) (0.0251) (0.00875) DUAL -0.0688 -0.785 -0.459 0.0614 (0.360) (0.670) (0.413) (0.0967) MEETINGS -0.0692** -0.00211 -0.0147 -0.0896*** (0.0281) (0.0282) (0.0246) (0.00764) FEMALE 0.00316 -0.00877 -0.00363 0.0129*** (0.00617) (0.00721) (0.00611) (0.00150) INDEP 0.000814 0.00128 0.00206 -3.26e-05 (0.00417) (0.00378) (0.00325) (0.000841) LNTA -0.159*** -0.0789* -0.117*** -0.0567*** (0.0596) (0.0468) (0.0393) (0.0170) EQTA 0.0422*** 0.0265*** 0.0337*** 0.0186*** (0.00872) (0.00895) (0.00679) (0.00189) NLTA -0.00708 -0.00659 -0.00914* -0.0106*** (0.00482) (0.00616) (0.00471) (0.00135) COST -0.0533*** -0.0505*** -0.0513*** -0.0386*** (0.00522) (0.00395) (0.00323) (0.00111) COR -0.000721 0.00267 0.00180 -0.0143*** (0.00384) (0.0129) (0.00548) (0.00103) LNGDP 0.0692** -0.525 0.0354 -0.0525*** (0.0317) (0.525) (0.0532) (0.0124)

CRISIS7_8 0.0374 0.350* 0.391** 0.0883*** (0.389) (0.204) (0.191) (0.0245) L.ROA 0.389*** (0.00789) Constant 6.200*** 8.691** 5.226*** 5.781*** (0.579) (3.524) (0.654) (0.113) Observations 682 682 682 640 R-squared 0.426 0.291

Notes: BSIZE represents board size of the bank, INDEP denotes percentage of independent directors, DUAL represents role duality, FEMALE denotes the percentage of female directors on bank board, MEETINGS represents the number of board meetings per year, LNTA denotes the size of the bank, COST denotes cost to income ratio, EQTA denotes equity/total asset, NLTA represents net loans/total assets, LNGDP represents Gross Domestic product, COR denotes corruption, CRISIS7_8 represents 2007/2008 financial crisis, ***, **, * indicate significance at 1, 5 and 10% respectively, Robust standard errors in parenthesis

Table 16: Results of corporate governance and bank performance using ROE as performance measure

MODEL (1) (2) (3) (4)

VARIABLES OLS Fixed effect 2SLS GMM

BSIZE -0.219 0.155 0.121 -0.297*** (0.146) (0.223) (0.176) (0.0466) DUAL 0.771 3.061 0.180 -1.312* (2.434) (4.886) (2.785) (0.779) MEETINGS -0.438** -0.00973 -0.0538 -0.525*** (0.171) (0.206) (0.174) (0.0373) FEMALE 0.123*** -0.0146 0.0209 0.0436*** (0.0409) (0.0525) (0.0433) (0.0126) INDEP 0.00392 -0.00183 0.00753 -0.0666***

169 (0.0257) (0.0276) (0.0230) (0.00501) LNTA -0.653* -0.198 -0.643** -0.505*** (0.364) (0.341) (0.282) (0.0892) EQTA -0.210*** 0.0319 -0.0718 -0.208*** (0.0348) (0.0652) (0.0467) (0.0173) NLTA -0.0459* 0.0789* -0.0145 -0.0486*** (0.0249) (0.0449) (0.0328) (0.00884) COST -0.321*** -0.333*** -0.323*** -0.215*** (0.0322) (0.0288) (0.0226) (0.0139) COR 0.0297 0.0548 0.0239 0.0227** (0.0239) (0.0940) (0.0357) (0.0108) LNGDP 0.108 -12.46*** -0.120 -0.531*** (0.211) (3.828) (0.339) (0.105) CRISIS7_8 3.937 4.576*** 5.937*** 3.335*** (2.872) (1.489) (1.400) (0.112) L.ROE 0.281*** (0.0129) Constant 42.35*** 108.9*** 36.36*** 43.05*** (3.640) (25.69) (4.376) (1.439) Observations 682 682 682 640 R-squared 0.341 0.288

Notes: BSIZE represents board size of the bank, INDEP denotes percentage of independent directors, DUAL represents role duality, FEMALE denotes the percentage of female directors on bank board, MEETINGS represents the number of board meetings per year, LNTA denotes the size of the bank, COST denotes cost to income ratio, EQTA denotes equity/total asset, NLTA represents net loans/total assets, LNGDP represents Gross Domestic product, COR denotes corruption, CRISIS7_8 represents 2007/2008 financial crisis, ***, **, * indicate significance at 1, 5 and 10% respectively, Robust standard errors in parenthesis