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Corporate Governance Effectiveness, Operational Risk and Financial Performance of Banks: The Role of Firm Size

Author

Listed:
  • Ofori Benjamin Siaw

    (Faculty of Business Studies, Takoradi Technical University, Takoradi, Ghana)

  • Padi Abigail

    (Faculty of Business Studies, Takoradi Technical University, Takoradi, Ghana)

  • Musah Alhassan

    (Faculty of Business Studies, Takoradi Technical University, Takoradi, Ghana)

Abstract

This study examines the effect of corporate governance and firm size on operational risk and financial performance in commercial banks in Ghana. It focuses on how board characteristics such as board size, independence, meeting frequency, and financial expertise affect the operational risk and financial outcomes of these banks. Additionally, the study examines how firm size moderates the relationship between corporate governance practices and both operational risk and financial performance. The research uses panel data collected from 15 commercial banks over 10 years (2013–2022). A two-stage least squares (2SLS) regression model was employed to test the hypotheses. The results of the direct relationships showed that board size, board meetings and firm size had a significant effect on operational risk even though that of board size and firm size were negative. Board meetings and board independence significantly influence bank performance (ROA & ROE) even though board meetings had a negative association with ROA and ROE. With respect to the interactions, the moderating effect of firm size on board meetings had a significant negative effect on operational risk. Furthermore, the moderating effect of firm size on the relationship between board size and ROA & ROE is positive and statistically significant whiles that of the interaction of firm size and board meetings is negative and statistically significant. The study contributes to the understanding of corporate governance practices in emerging markets, particularly in Ghana’s banking sector, highlighting the importance of board composition and firm size in managing operational risk and improving financial outcomes.

Suggested Citation

  • Ofori Benjamin Siaw & Padi Abigail & Musah Alhassan, 2025. "Corporate Governance Effectiveness, Operational Risk and Financial Performance of Banks: The Role of Firm Size," Economics, Sciendo, vol. 13(2), pages 71-93.
    • Handle: RePEc:vrs:econom:v:13:y:2025:i:2:p:71-93:n:1004
    DOI: 10.2478/eoik-2025-0031
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    References listed on IDEAS

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    1. Yassine Bakkar & Annick Pamen Nyola, 2021. "Internationalization, foreign complexity and systemic risk: Evidence from European banks," Post-Print hal-04881059, HAL.
    2. Zhang, Ran & Li, Yifei & Tian, Yuan, 2022. "Corporate bonds with implicit government guarantees," Pacific-Basin Finance Journal, Elsevier, vol. 71(C).
    3. Hellen Mutua, 2023. "Relationship between Corporate Governance Practices and Credit Risk in Banking," International Journal of Modern Risk Management, IPR Journals and Book Publishers, vol. 1(1), pages 45-56.
    4. Bakkar, Yassine & Nyola, Annick Pamen, 2021. "Internationalization, foreign complexity and systemic risk: Evidence from European banks," Journal of Financial Stability, Elsevier, vol. 55(C).
    5. Chi‐Chur Chao & Leonard F. S. Wang, 2022. "Corporate governance, firm dynamics, and wage inequality," Manchester School, University of Manchester, vol. 90(3), pages 341-353, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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