A STUDY ON BOARD CHARACTERISTICS AND IT’S EFFECT ON PERFORMANCE

OF SOUTH AKIM RURAL BANK, KOFORIDUA

PROJECT REPORT

BY:

ZUGAH BERNICE ANU16280302

AGYEKUM JOSEPH BOADI ANU16280248
DESMOND APPIAH ANU16280385

UNDER THE SUPERVISION OF

DR. DAVID BOOHENE

THIS PROJECT WORK IS SUBMITTED IN PARTIAL FULFILLMENT OF THE

REQUIREMENT FOR AN AWARD OF BACHELOR OF BUSINESS
ADMINISTRATION

SCHOOL OF BUSINESS
ALL NATIONS UNIVERSITY
JUNE, 2020
 DEPARTMENT OF BANKING AND FINANCE
SCHOOL OF BUSINESS
ALL NATIONS UNIVERSITY, KOFORIDUA

CERTIFICATION
This is to certify that the project entitled, “A study on board characteristics and it’s effect on
performance of South Akim Rural Bank, Koforidua”, is a bonified work done by ZUGAH
BERNICE (ANU16280302), AGYEKUM JOSEPH BOADI (ANU16280248), and
DESMOND APPIAH (ANU16280385) and is submitted in partial fulfilment of the requirements
for the degree of Bachelor of Business Administration of All Nations University, Koforidua.

............................................ …….…………………….
Dr. David Boohene Dr. Emmanuel Atta
Faculty Guide Head of Department

…………………..……….. .…………………………..
Dr. Mark Boadu External Examiner
Dean – School of Business

II
 DECLARATION

We hereby declare that the project work entitled “A study on board characteristics and its effect
on performance of South Akim Rural Bank, Koforidua” submitted in partial fulfilment of the
requirements for the degree of Bachelor of Business Administration, is a record of original work
done by us under the supervision and guidance of Dr. David Boohene of Department of Banking
and Finance, School of Business, All Nations University, Koforidua. This project work has not
formed the basis for the award of Degree/Diploma/Fellowship of similar title to any candidate of
any university.

Project Work Candidates

ZUGAH BERNICE (ANU16280302)

Sign…………………………………………

Date…………….…………………………...

AGYEKUM JOSEPH BOADI (ANU16280248)

Sign………………………………………

Date………………….………….………..

DESMOND APPIAH (ANU16280385)

Sign………………………………………

Date…………………………….……….

III
 DEDICATION

This project work is dedicated to Our GOD ALMIGHTY for giving us strength and wisdom
throughout the program. We also dedicate this report to our beloved parents who set for us an
academic foundation that has led us to this level and lastly to the Banking and Finance Department
for their dedication, support and love and motivation.

IV
 ACKNOWLEDGEMENT

We are very grateful to our supervisor Dr. David Boohene for his advice and help. We have learnt
a lot through his critical and valuable comments on all aspects of the project work. We thank the
staff and management of South Akim, Rural Bank, Koforidua who gave us the opportunity to
conduct this research in their organization, even in that short notice. We are grateful.

V
TABLE OF CONTENTS PAGE
Certification II

Declaration III

Acknowledgement IV

Table of content V

Abstract X

CHAPTER ONE:

1.0 INTRODUCTION 1

1.1 Background of study 3

1. 2 Statement of the Problem 6

1.3 Research Objectives 6

1.4 Research Questions 7

1.5 Scope of the study 7

1.6 Significant of the study 8

1.7 Organization of Study 8

CHAPTER TWO: LITERATURE RREVIEW 9

2.1 Introduction 9

2.2 Corporate Governance Definitions 10

2.3 Historical Overview of Corporate Governance 12

VI
2.4 Board of Directors 13

2.5.1 Board Size 14

2.5.2 Board Composition 18

2.5.3 Board Independence 20

2.6 Board of Directors and Bank Performance 21

2.6.1 Bank Size 23

2.7 Financial Performance 24

2.8 Empirical Literature 27

2.9 Research Gaps 28

CHAPTER THREE: RESEARCH METHODOLOGY 29

3.1 Introduction 29

3.2 Research Design 29

3.3 Data collection techniques 29

3.4 Population of the study 30

3.5 Sample techniques and Sample Size 30

3.6 Instrument for data collection 30

3.6.1 Primary sources 31

3.6.2 Secondary Sources 31

3.7 Data Collection Instrument 31

3.8 Data Analysis 32

3.9 History of South Akim Rural Bank 32

VII
CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION.

4.0 Introduction 33

4.1 Representation and Analysis of Personal Data 34

4.1.2 Age Group 35

4.1.3 Department 36

4.1.5 Qualification 37

4.1.4 Marital Status 37

4.1.6 Years of Work Experience 38

4.1.7 Years organization has been in Operation 39

4.2 Presentation and Analysis of Research Objectives One: 39

4.2.2 Characteristics of the Board in South Akim Rural Bank, Koforidua 40

4.3. Research Objective Two: 41

4.3.2 To what extent Does Board Characteristics affect Financial Performance 42

4.4 Research Objective Three: 42

CHAPTER FIVE:

SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSIONS 44

5.1 Summary of findings 44

5.2 Recommendations 45

5.3 Conclusion 46

VIII
REFERENCES 47

APPENDIX 53

Tables

Table 4.1 Gender 34

Table 4.2 Age group 35

Table 4.3 Department 36

TABLE 4.4 Marital Status 37

Table 4.5 Highest Qualification 37

TABLE 4.6 Years of work experience 38

TABLE 4.7 Years Organization has been in operation 39

TABLE 4.8 Board Characteristics in South Akim Rural Bank, Koforidua 39

Table 4.9 Characteristics of the Board in South Akim Rural Bank, Koforidua 40

Table 4.10 There is a strong relationship between corporate governance and financial performance

of South Akim Rural Bank 41

Table 4.11 Performance rating 42

Table 4.12 Effect of corporate governance on financial performance of South Akim Rural Bank

42

Table 4.13 One-Sample Test 43

IX
 ABSTRACT

Furthermore, the issue of corporate governance had also received a lot of attention. Several reports

on Corporate governance cited weaknesses in the governance mechanisms as a whole in the

banking and non-banking institutions. This study however looks at the singular impact of board

characteristics on the financial performance of rural banks, precisely South Akim Rural

Bank,Koforidua.

The total sample size used was for the study was 35 out of a population of 214 to obtain feedback
for the study. A descriptive research design involving a structured questionnaire was used to obtain
the data, the data was then analysed and interpreted using SPSS Software. The study revealed that
high knowledge of financial management is the main characteristics of board members as per the
study. Also there is a strong relationship between board characteristics and financial performance.
Lastly the characteristics of the board as a whole has a large effect on the financial performance
of South Akim Rural Bank, Koforidua.

One of the key policy recommendation is that South Akim Rural Bank, Koforidua need to have a
board made up of non-executive directors. Having a board of directors with majority of outsiders
has been shown to be important for improving the performance of Ghanaian rural banks. It is
established in this study that outside directors are often in position to guide bank management on
how to be cost efficient among others.

KEY WORDS: Rural Bank, Corporate governance, Performance, Board Characteristics

X
 CHAPTER ONE

1.0 INTRODUCTION

This chapter tends to assess board characteristics and its effect on financial performance of

rural banks in Ghana. A case of South Akim Rural Bank Limited. The chapter deals with the

background of the study, the statement of the problem, research objective and questions,

significance of the study, scope of the study, limitation, organization of the study. The number

of directors on the firm's board can play a critical role in monitoring the board and in taking

strategic decisions. Board size affects the efficiency of the board's control function. Previous

studies showed that a board's ability to monitor and make important corporate decisions

increases with its size (Kiel & Nicholson, 2003). Empirical studies on board size reveal a link

with performance. (Erickson et al., 2005) suggest that a bigger board is more diverse with more

links to the external environment to obtain critical resources and ideas for informed choices on

corporate policies that will enhance efficiency. Moreover, it is also desired when a powerful

and authoritative CEO is the board chairman. Brown and Caylor (2004) however propose a

maximum board size of fifteen for large firms as more free-riding increases beyond this point

when some directors neglect their monitoring and resource provision duties. Agency

proponents argue that even if a larger board may have diversity, firms cannot afford to increase

board’s adinfinitum. Consequently, a smaller board size with reduced monitoring duties will

promote efficiency, strategic discussions, communication and coordination (Jensen, 1993). As

the board gets bigger, there are more conflicts of interest in decision making while most board

members also become passive and lazy reneging on their duties to provide resources.

Board composition refers to the manner in which executive and non-executive directors,

including independent non-executive directors are represented on the board. Singapore’s

corporate governance code (2012) directs that there should be a strong element on the board,

1
which is able to exercise independent and objective judgment on corporate affairs. No person

or small group of persons should be given the leeway to be domineering during the board’s

decision making. The presence of executive directors on the board is highly essential. They

bring to bear their expertise in specific areas and a vast amount of knowledge to the entity (weir

andlaing, 2001).Board Process however refers mainly to the decision making activities of the

Board. It pertains to the healthy and sometimes rigorous discussion on corporate issues and

problems so that decisions can be reached and supported (Ong 2001). Lastly the structure has

to do with the number of board members, outside representative, Board leadership and

committee structure (McNulty et al., 2012).

Boards of directors’ ability to act as effective monitoring mechanisms rely on their

independence from management. Researchers have focused on the proportion of executives to

independent directors1 as an indicator of board independence (David-son et al., 2005; Koh et

al., 2007; Peasnell et al., 2005). Some previous studies have suggested that independent

directors are effective monitors because they do not have financial interests in the company or

psychological ties to management (Boo and Sharma, 2008). They are in a better position to

objectively challenge management (Abbott et al., 2004; Klein, 2002). Bedard and Johnstone

(2004) have also argued that higher independent director representation on the board provides

more vigilant oversight of the monitoring process.

The number of board meetings per year influences the monitoring ability of the board. Too

many or too few meetings can be a threat to effective board monitoring. Too few meetings may

indicate the directors are not paying proper attention to the company; again, too many may

indicate that there is some difficulty in the firm (Kang et al., 2007; Vafeas, 1999). Boards that

meet frequently are more likely to perform their duties diligently and effectively, thereby

enhancing their level of oversight (Yatim et al., 2006). Boards of directors need to be active in

ensuring high-quality transparent reporting in annual reports (Kent and Stewart, 2008).

2
According to the Blue Ribbon Committee Report (1999), a well-balanced and effective board

should have directors with an array of talent, experience and expertise that influence different

aspects of the company’s activities; such diverse contributions are often made by different

directors. DeZoort and Salterio (2001) and Cohen et al. (2002) conclude that it is important for

committee members to have accounting and financial expertise. Similarly, Ramsay (2001)

notes that financial literacy is ‘an important component of the general standards of care, skill

and diligence required of company directors. The directors’ financial literacy helps them to

understand the implications of basic financial decisions. Financial literacy can be acquired

through both formal and self-guided education (ASX CGC, 2007; Livingston, 2002). The

general implication is that financial literacy assists directors in monitoring management.

1.1 BACKGROUND OF THE STUDY

According to the Bank of Ghana (2006) notable among the roles of Rural Banks is to mobilize

savings in the rural communities and channel them into the provision of credit to rural

microenterprises, Agro-based firms and cottage industries; monetize the rural communities by

way of inculcating in rural folks the culture of formal banking; serve as tools for the growth

and development of microenterprises in the rural communities to facilitate rapid rural

industrialization for the overall enhancement of the national economy.

Rural banking in Ghana takes its concept from the early 1970s. Prior to that period, the main

operators in the rural financial market comprised branches of commercial banks, credit unions

as well as other entities in the informal sector such as money lenders, traders and “susu”

collectors. Friends and relations were also important sources of rural finance.

3
A shared definition of corporate governance which is both valuable and consistent has not been

easy to find (Borga, 2005), because every economy and country has different systems of

corporate governance that differ to each other in accordance to the strength, power and

influence being exercised by their various stakeholders and management. Furthermore,

different socio-economic, legal, political and cultural systems existing in each country do have

relevant influences on corporate governance (Okike, 2007). That is why the use of the clause:

there is “no one size fit all” approach in corporate governance is prevalently being used.

Nevertheless, the objectives of corporate governance share com-mon denominator worldwide.

Corporate Governance systems have evolved over centuries, often in response to corporate

failures or systemic crises. The first well-documented failure of governance was the South Sea

bubble in the 1700s, which revolutionized business law and practices in England. Similarly,

much of the securities laws in the US were put in place following the stock market crash of

1929 (Borgia, 2005). However, the subject of corporate governance in many other developed

markets in the late 1900’s received serious attention after some corporate and business

collapses such as Parmalat and Enron cases which are attributed to poor governance practices.

This development was accelerated with the onset of the Asian crisis in mid-1997 and the early

2000 global financial crisis that started out in the US housing market, causing global economic

contagion (Ghana SEC, 2002)

Interestingly, corporate governance in the developing economies also received a lot of attention

within the last decade (Oman, 2001; Goswami, 2001; Lin, 2001; Malherbe and Segal, 2001).

Corporate governance developments in Ghana has however taken an interesting dimension

with the introduction of 2002 Code of best practices by SEC; as well as many other guidelines

by all other agencies. While the subject has taken on international dimensions, due to the

globalization of the economies and the financial investment markets, many multilateral

agencies has continued to encourage governments, regulators and organizations to examine the

4
subject closely and to take proactive steps to introduce and implement proper corporate

governance procedures. Thus, many of these agencies either individually or collectively issued

codes containing the general principles upon which acceptable corporate governance

frameworks should be based. Notably amongst these are the codes and principles issued by

organizations such as the Organization for Economic Co-operation and Development and the

Commonwealth Association for Corporate Governance (Ghana SEC, 2002).

Corporate governance has become an increasingly important phenomenon in recent years,

primarily due to the number of corporate scandals, which have resulted in a decline in

shareholder value, a reduction in investor confidence and in some cases significant bank

failures (Klapper & Love, 2004). Good governance is essential in promoting and ensuring

fairness, accountability and transparency within organizations (OECD, 2010, Murphy &

O’Donohoe, 2006). Effective corporate governance should fundamentally guarantee

shareholders’ value by ensuring the appropriate use of firms’ resources, enabling access to

capital and improving investor confidence (Denis & McConnell, 2003). This is related to both

internal organization and external market conditions; a firm’s responsiveness to external

conditions is largely dependent on the way the firm is managed as well as the efficacy of the

firm’s governance structure (Geogory & Simms, 1999). Some authors, Rwegasira, (2000);

Nam et al., (2004) have argued that good corporate governance prevents the expropriation of

company resources by managers, ensuring better decision making and efficient management.

This results in better allocation of company resources and ultimately, improved performance.

In this regard, La Porta et al., (2002); and Young et al., (2008) stress that, unlike developed

economies where principal–agent conflicts are the major concern of corporate governance,

principal (controlling shareholder) –principal (minority shareholders) are a major issue in

developing countries. In Ghana, banks have high ownership concentration, and higher degree

of economic uncertainties coupled with weak legal controls and poor investor protection, and

5
frequent government intervention; all resulting in poor performance (Rabelo & Vasconcelos,

2002). There has been a series of calls by international agencies such as the IMF, IFC and

World Bank on the Ghanaian government to create a stable macroeconomic environment,

strong investor protection, and a robust regulatory and legal framework to help the growth of

capital market.

1.2 STATEMENT OF THE PROBLEM

The systemic risk from bank failures needs to be avoided and hence the study of corporate

governance of banks takes priority in an economy. Given the importance of corporate

governance, several empirical studies have been conducted in developed countries on the

relationship between corporate governance mechanisms and banks’ financial performance and

found mixed results (Adams & Mehran, 2012; 2005; Erkens et al., 2012; Aebi et al., 2012;

Busta, 2008). Furthermore, the issue of corporate governance had also received a lot of

attention from the World Bank ROSC reports (2005; 2007; 2010) and IMF Country reports of

2011 and 2013. These reports cited weaknesses in the governance mechanisms as a whole in

the banking and non-banking institutions. This study however looks at the singular impact of

board characteristics on the financial performance of rural banks, precisely South Akim Rural

Bank.

1.3 RESEARCH OBJECTIVES

1. To identify the board characteristics at South Akim Rural Bank, Koforidua

2. To examine the extent to which board characteristics affect financial performance of South

Akim Rural Bank, Koforidua.

3. To examine the effect of board characteristics on financial performance of Rural Banks.

6
1.4 RESEARCH QUESTIONS

Specifically, the study seeks to answer the following questions;

1. To what extent (if any) does board size affect the financial performance of the rural bank?

2. Does the presence of board composition (non-executive directors) affect the rural bank

performance?

3. Is there a significant relationship between board committee structures and the financial

performance of banks?

4. Is there any relationship between bank size and financial performance of the rural banks in

Ghana?

5. What are the characteristics of the board at South Akim Rural Bank?

6. What is the extent to which board characteristics affect financial performance in South Akim

Rural Bank?

7. What is the effect of corporate governance on financial performance of South Akim Rural

Bank?

1.5 SCOPE OF THE STUDY

This study focused on corporate governance and its effect on the performance of the South

Akim Rural Bank, Koforidua its growth, mobilization and expansion in meeting the needs and

satisfaction of customers in the catchment area the geographical location of the bank under

study is Koforidua.

7
1.6 SIGNIFICANCE OF THE STUDY

The findings will be of great benefit to future researchers in the field of financial management

in providing relevant literature in building up the course of study. It will also benefit other

scholars and students of finance who may use the findings for academic purposes. The study

will play a major role in financial stability of different firms and their efficient utilization of

funds in achieving the financial goals of the business this effective utilization in the long run

will increase wealth of the shareholders. It could ultimately accrue to managers, the skill of

managing operations in light of the various uncertainties present in the Rural banks as well as

improving shareholders’ wealth in the long term and the financial health of the business.

1.7 ORGANISATION OF THE STUDY

This study will be organized into five chapters. Chapter one will focus on background to the

study, problem statement, objectives of the study, research questions, and significance of the

study and organization of the study. Chapter two looks at review of relevant literature to obtain

detailed knowledge on the topic being studied. Chapter three will focus on the research

methodology to be employed in the study. This will involve research design, followed by

population and sampling procedure, data collection procedure and instrument adopted and used

for the study and data analysis. Chapter four will cover the analysis of data, findings and

discussions of the results. Chapter five will seek to summarize all the Findings and draw

Conclusions, Recommendations and Suggestions for future

8
 CHAPTER 2

LITERTURE REVIEW

2.1 INTRODUCTION

This chapter presents the historical development of corporate governance and various

definitions of corporate governance introduced by different researchers. According to Roche

(2005) corporate governance is an evolving subject and is not easy to define; definitions vary

according to their context. According to Armstrong and Sweeney (2002) there is no single

acceptable definition of corporate governance. There is a considerable debate about the

definition of corporate governance among researchers and scholars. In regard to the various

definitions, researchers and scholars classify definitions either narrow or broad sense. Narrow

definition is based on satisfying the interest of the shareholders, while the broad definition

extends the previous definition and include the interest of stakeholders (investors customers,

employees, unions and the society) (Gillan, 2006; Sternberg, 2004). This study will therefore

adopt the broad definition and defines corporate governance in the context of banking as the

manner in which systems, processes, procedures and practices of a bank are managed so as to

allow for positive relationships and the exercise of power in the management of assets and

resources (Ranti, 2011). This is with the aim of advancing the interest of shareholders, and

stake-holders including depositors, investors, and customers with improved accountability,

monitoring and transparent administration. The chapter also discusses the corporate

governance variables and financial performance variables relevant to the study.

9
2.2 CORPORATE GOVERNANCE DEFINITIONS

The concept of corporate governance has continued to elicit lots of scholarly debate owing to

multi-dimensionality and multi-disciplinary definitions .Among economists and legal scholars,

corporate governance is defined as defense of shareholders' interests (Tirole, 2001) Alternately,

Shleifer & Vishny, (1997) defined corporate governance as the process through which suppliers

of finance to corporations gain assurance of return on their investment. Hill & Jones (2001)

assert that corporate governance from a managerial perspective refers to the controls used to

ensure that managers’ actions are consistent with the interest of key constituent shareholders.

From these definitions, corporate governance generally depicts the process which determines

the purpose of the organization (whom exists to serve) and how these purposes and priorities

are decided. Corporate governance within its core structure is thus concerned with the

organizational functionality as well as the distribution of power among its various stakeholders

(Johnson and Scholes, 1997). Evidently, the definition of corporate governance seems to vary

along one’s view of the world (Shahin and Zairi, 2007). In spite of these variations, scholars

seem to have built consensus and generally settled on three main components of corporate

governance (Mazudmer, 2013). The first component is outlined as the corporate governance

philosophy which underpins the goal for which the corporation is governed. The second

component comprises the roles and relationships among a company’s management, its board,

its shareholders and other stakeholders. The third and last component comprises the firm’s

domicile regulatory and market mechanisms.

Arun & Turner (2004) support the broader definition of corporate governance by arguing that

the special nature of banking requires not only a broader view of corporate governance, but

also state intervention in order to restrain the behaviour of bank management. They further

10
argue that the unique nature of banking firms whether in the developed or developing countries

require that a broader view of corporate governance, which encapsulates both shareholders and

depositors, be adopted for banks. They posit that, in particular, the nature of the banking firms

is such that regulation is necessary to protect depositors, investors as well as the overall banking

system. This study will therefore adopt the above view and define corporate governance in the

context of banking as the manner in which systems, procedures, processes and practices of a

bank are managed so as to allow for positive relationships and the exercise of power in the

management of assets and resources (Ranti, 2011). This is with the aim of advancing the

interest of shareholders, and other stakeholders with improved accountability, monitoring and

transparent administration. This study also recognizes that board of directors, ownership

structure and bank size are essential to the definition of corporate governance.

Corporate governance is not easy to define as a result of the perpetually expanding boundaries

of the subject (Roche, 2005). Corporate governance can be defined as the relationship among

shareholders, board of directors and the top management in determining the direction and the

performance of a corporation (Wheelan and Hunger, 2006). Definitions vary according to

context and cultural situations (Armstrong & Sweeney, 2002) and the perspective of different

researchers. Some schools of thought argue that the primary responsibility of firms is

maximization of the wealth of the shareholders (Sundaram & Inkpen, 2004). Other schools of

thought also argue that a firm has an obligation, not only to its shareholders but all stakeholders

whose contribution is necessary for the success of the firm (Donaldson, 1983; Freeman, 1984).

Corporate governance is about oversight, process, independence and accountability. It has been

defined either narrowly or broadly by different scholars and practitioners depending on their

background and focus (Salacuse, 2002).

11
2.3 HISTORICAL OVERVIEW OF CORPORATE GOVERNANCE

The word governance originates from the Latin word, “gubernare”, meaning to rule or to steer

and the Greek word, “kubepunois” which means to steer. Nobert Wiener used the Greek root

as the basis of cybernetic - the science of control in man and machine. The idea of the steer

man- the person at the helm- is + particularly helpful insight into the reality of governance

(Tricker, 1984). Corporate governance has been an issue since 1600 when Queen Elizabeth I

granted the first royal charter to the East Indian Company to trade into the Far East (Baskin &

Miranti, 1997). The basic issue then was who had power and the degree of accountability for

its use. The court of directors was selected by the court of proprietors who were the investors

in this company. The court of directors then appointed the chief executive officer who

accounted to them (Cadbury, 2002). The governance structures of this company were not

different from what we have in the capitalist world today (Warren, 2000). Adam Smith (1776)

noted in his ‘Wealth of Nations’ that, as managers do not own the company, it should not be

expected that they will watch over the company the way the owners will do. This conflict of

interest was not a major issue at the time Adam Smith made this observation because of the

size of shareholdings in a company at that time and the low numbers of passive investors

(Cadbury, 2002).

Since the beginning of the 1990s, and with the financial scandals and or the bankruptcies which

ravaged firms in the US and Europe, like those of Enron (2001), Vivendis Universal (2002),

Ahold (2003) and Parmalat (Italy) (2003) governance of firms became a hot topic for the media

and the financial literature. Several reports have been published on the subject: principle of

corporate governance in the U.S in 1992, the Sarbanes- Oxley Act in 2002, Greensbury, Higgs,

12
and Hampel in the UK in 1995, 1998 and 2003, Vein in 1995, and Bouton in 2002 in France.

These reports were translated into new laws and regulations showing the limitations of the

existing corporate governance mechanisms, thus provoking scholarly controversies on the

definition of governance as well as on the models which are to secure shareholders’ interest

(Trabelsi, 2010).

2.4 BOARD OF DIRECTORS

The Board of Directors (BD) is a fundamental component of the corporate government system,

its main function is to be the link between the proprietors and the management, to orient,

supervise and counsel the relation of the latter with all other interested parties (Ward & Handy

1988). A common goal in the corporate government research has been to determine the possible

relation between some BD features and economic performance of the firm. Notwithstanding,

it is acknowledged that no theory can explain in a broad manner the relations between BD and

performance, this relation is varied and complex, therefore, it cannot be encompassed by a sole

theory (Nicholson & Kiel 2007). This paper aims to study the relationship between three

characteristics of the Board of Directors (Board Size, Independent Members, and Number of

Meetings) and perform.

Board of directors is the top executive unit of a company and responsible for supervising the

management on behalf of shareholders. Previous literature linked the board of directors’

characteristics with firm performance. Haniffa and Hudaib (2006) examine some of board of

directors’ characteristics (board size, multiple directorships and role duality), and find them to

be significantly associated with the firm performance. Al-Matari et al. (2014) use a sample of

Omani firms to investigate board characteristics (board size, board independence, board

meeting, CEO tenure and CEO duality) they find a non-significjoant positive relationship

13
between all the characteristics and firm performance except the board independence is

negative. By using a sample of 115 firms listed on the Amman stock exchange, Marashdeh

(2014) examines the effect of board size, CEO duality and non-executive directors, and finds

mix results. His findings fail to reveal any significant effect of the board size on firm

performance, while the CEO’s duality has a positive impact on firm performance. However,

non-executive directors have a negative impact on such relationship.

The fundamental role of the board of directors is to monitor the managerial side of a firm and

to minimize the problems inherent in the principal-agent relationship. In this sense, the

principals are the owners, the agents are the managers and the boards of directors’ act as the

monitoring mechanism. If the interests of the agent and the principal are misaligned, an agency

problem exists. There is always the potential for agency problems, mainly that agents will

pursue their own objectives at the expense of the principals, for which reason principals appoint

members of the board of directors as well as agents to ensure that the firm is working in the

interests of its owners. This divergence of interests and the need to oversee agents causes the

firm to incur agency costs, including monitoring and bonding costs as well as and residual

losses (Jensen and Meckling, 1976). Ultimately, the principals bear these costs, thus the

reduction of agency costs is part of the duty of maximizing shareholders’ value. The board of

directors is the apex of hierarchical corporate control systems, and its primary role is to monitor

the management by agents on behalf of principals (shareholders) who elect its members. The

more power and control the board exercises over managers, the less opportunity managers

(agents) have for activities not geared to the maximization of shareholder value (Liu and Fong,

2010).

14
2.5.1 BOARD SIZE

To intensify board monitoring and improve performance, one fundamental theory is agency

theory. Agency theory describes the size of the board depicting the level of control exercised

by management. Other theories such as managerial hegemony theory believe that if

management dominant the board, board will be inactive in resolving agency conflict. These

theoretical views place the size of the board partly as a critical component of corporate board

in ensuring monitoring intensity in resolving agency conflict and improving firm performance.

Board size is a critical component of a well composed board and can affect the effectiveness

of board monitoring and control function. Board size depicts the ability of the board to resist

the control exercised by managers (Sundgren & Wells, 1998; Shelash Al- Harwery, 2011). This

is expected to improve board monitoring and enhance performance. Following these theoretical

predictions and viewpoints, Boone et al. (2007) find that board size and independence increase

as firms grow and diversify over time. Previous studies have investigated the impact of board

size on monitoring managers, setting their compensation and enhancing the firm’s value. Board

size is expected to play a key role in terms of the quality of the board in supervising, monitoring

the management of the company and thus affecting the quality of the internal control (Lipton

& Lorsch, 1992; Jensen, 1993; Vallelado 2008). Studies such as Fernández et al. (2007)

observe a non-monotonic relationship and thus estimating the optimal number of directors.

Related studies have tried to approximate the optimal board size. Jensen (1993) for instance

suggests that the optimal board size is between seven and eight members. Studies on board size

argue that smaller boards are more effective because directors enjoy better communications

and interactions between them (Yermack, 1996; Ozkan, 2007). Yermack (1996) observe that

small boards of directors are more effective, and that companies with small size achieve higher

market value. Fischer and Pollock (2004) obtain evidence to support the effectiveness of

smaller boards in monitoring CEO resulting from reduced coordination and free-rider problems

15
(Yermack, 1996; Chanchart, Krishnamurti, & Tian, 2012) and enhance firm performance.

Supporting the effectiveness of small board in improving firm performance empirical studies

(see; Mak & Li, 2000; Cheng, 2008; Guest, 2009) report that large board size is linked

to low firm performance and high earnings management. Contrary to the effectiveness of

smaller board size, other studies assume that larger boards are supposed to provide firms with

better monitoring as they generally have more time and experience than smaller boards (Monks

& Minow, 1995; Uadiale, 2010). Reddy et al. (2010) support this assertion indicating that board

monitoring is directly associated with larger boards as a result of their ability to share work

load over a greater number of directors. Large boards are strongly related to lower levels of

earnings management (Peasnell et al., 2000; Bedard et al., 2004; Xie et al., 2008). As it can be

observed from the above review, evidence on the relationship between board size and firm

performance is not only mixed and inconclusive but has concentrated in developed market.

However, small board size is easily manipulated by senior managers (Sharma, 1985) from

managers’ perspective. It can be argued that when board size is large; the ability of the board

to monitor and control managers becomes effective in controlling agency problem and

improving firm performance. In respect to Ghana the code of best practices in these countries

address the issue of board size, whereas the code of best practices in Ghana in 2010

recommends between 8-16,. This therefore places the board size as contextual issues in these

two countries. Agency theory predict that the size of the board depicts the level of control by

management. Therefore, this study conjectures that board size is related to firm performance.

Several studies found that larger boards put more effort to negotiation and compromising

among members, therefore their decisions are less risky and more shaped to satisfy different

opinions than those of smaller groups (Kogan and Wallach, 1966; Lanser, R. 1969). Sah and

Stiglitz (1986, 1991) compared outcomes of discussions under different structures of group

decision-making. They noticed that bigger groups had a diversification of opinions effect,

16
which lowered the likelihood of accepting bad projects. According to that, larger boards could

be preferable due to more thought-out decisions. It is important to mention that large groups

were also less likely to accept good projects (Sah and Stiglitz, 1991). Nevertheless, the majority

of studies on this relationship found evidence that smaller boards more often result in a good

performance (Lipton and Lorsch, 1992; Yermack, 1996). The cause for it could be partial

elimination of bad communication, and poor decision-making (Guest, 2009). Free riders, which

are more likely to be present in large boards, possibly also worsen and slower internal board

processes (Thomsen & Conyon, 2012). Lipton and Lorsch (1992) argued that large boards may

be less efficient because of difficulties to solve agency problems among members. Coles,

Daniel & Naveen (2008) found a U- shaped relationship, meaning that either very small or very

large boards are the most effective. Cheng (2008) examined the effect of different board sizes

on variability of corporate performance. He empirically concluded that larger boards make less

extreme decisions, and therefore have less variable performance. Smaller boards, on the other

hand, are more likely to have extreme short wins and losses. Even though small and large

boards have their shortcomings, they hold unique benefits, which the other one does not have.

The difference between them is more frequent risk taking (smaller boards) versus

circumspection (larger boards), which are not the result of director’s personal qualities, but the

internal environment shaped by its composition. In the long run the average performance

indexes may have the same or similar value. The decisions of large boards are still well thought-

out, but lack a radical increase in performance. Smaller boards have a higher chance of

experiencing losses, which can be compensated by excessive gains further on. The medium-

sized boards may not have the same efficiency, and instead of getting the best advantages of

the previously mentioned board compositions, suffer from the disadvantages, such as inability

to make decisions fast, slow adjustment to new circumstances and unreasonable risk taking.

17
Thus, it is possible to assume that small and large boards are more preferable in order to achieve

a higher level of firm’s performance.

2.5.2 BOARD COMPOSITION

The Board of Directors has the task of contracting new managers, establishing their

compensating scheme and disciplining them. The Board is formed by executive (insiders) and

non-executive directors (outsiders). As executive, or insider, directors' careers are often tied to

those of other senior managers, they are usually unwilling to discipline managers (Weisbach,

1988) and, therefore, the task of evaluating senior managers and removing them when they fail

to perform well, will fall mainly on the non-executive directors. Outside directors may have

incentives, such as their reputation in the directors' labour market and the possible legal

implications derived from poor monitoring (Fama, 1980; Fama and Jensen, 1983) to control

managerial actions. In this sense, the empirical evidence suggests that the labour market

rewards good professional reputation with a higher number of directorships and that directors

of poorly performing corporations often lose directorships and are rarely offered additional

ones (Kaplan and Reishus, 1990).1 Different studies also suggest that outsiders play an

important role as monitors of senior managers. Weisbach (1988) finds that the removal of

CEOs, caused by poor performance is more likely to occur in outsider dominated Boards, than

in insider dominated ones.

Board composition is a debated corporate governance issue since it could influence board

deliberations and the capability to control top management decisions and results. Although

there is not an optimal formula (Vance, 1978), board independence has become a relevant issue

in the corporate governance agenda. Board composition is considered as the proportion of

outside directors on the board and is related to the level of independence of the board. Having

greater proportion of outside directors on a board could be considered to be a management

18
innovation as one of other mechanisms to mitigate agency costs between management and

shareholders (Chizema and Kim, 2010). Hence, according to the agency theory, the non-

executive directors are assumed to be important monitors that supervise and control the

executives. The agency perspective on the monitoring role of the board structure is that non-

executive directors are better positioned than executive directors to carry out the monitoring

function since they are presumably independent and more concerned for their reputation in the

labour market (Fama, & Jensen, 1983).

Gordini (2012) reported a positive relationship between non-executive directors and firm

performance as a result of their contributions such as skills, experiences and their linkage to

the external resources. He concludes that the greater the percentage of outside directors on the

board will result in better firm performance and add value to the company. These findings are

consistent with the view of agency theory and resource dependence theory, namely that non-

executive directors are effective monitors and a disciplining device for managerial behaviour.

Using a data of 296 large financial firms for the period 2004-2008, Erkens et al., (2012) found

a positive relationship between non-executive directors increased the effectiveness of

monitoring, then the performance of the company should improve. Having a higher proportion

of outside directors on the board increases the independence of the board.

Similarly, Sanda et al., (2005) reported that Nigerian firms with a low percentage of outside

directors performed better than those with more non-executive directors. This suggests that

whilst NEDs can bring independence and objectivity to bear upon board decisions, they can

also stifle managerial initiative through excessive monitoring. De Andres and Vallelado (2008)

stated that there a number of reasons why empirical evidence may not support the positive

relationship between non-executive directors and bank performance. Non- executive directors

are only employed on a part time basis and are likely to have other commitments, which may

result in devoting insufficient time to the company. They may lack the expertise required to

19
understand certain technical issues in the business and they not possess sufficient information

when called upon to make key decisions. More recently, Bhagat & Bolton (2008) confirmed

the existence of a negative relationship between board independence and operating

performance. Erkens et al., (2012) reached similar conclusions by using a sample of 296

financial firms from 30 countries. They found that firms with more independent boards

experienced worse stock returns during the 2007-2009 financial crises.

2.5.3 BOARD INDEPENDENCE

Level of board independence is represented by a number of independent directors in contrast

to a total number of board members. The results on relationship between firm performance and

board independence are mixed. The majority of scholars observed a negative correlation and

concluded that more effective boards are comprised of a greater proportion of outside directors

(Agrawal and Knoeber, 1996; Baysinger and Butler, 1985; Bharat and Black, 2002; Lorsch and

MacIver, 1989; Mizruchi, 1983; Zahra and Pearce, 1989). However, there are studies that found

no evidence of causality between percentage of outside directors and firm performance (Adams

et al., 2010; Hermalin and Weisbach, 1991; Mehran, 1995). The preference towards more

outsider- dominated board can be explained by agency theory. The principal-agent problem

discusses a behavior of an individual, and his willingness to serve self- interest first (Thomsen

& Conyon, 2012). The person may take advantage of having control and pursue actions, which

benefit him, but not company’s owners. Personal characteristics of a superior board member

must be integrity and open- mindedness (Salmon, 1993), which according to the agency theory

more correspond to the trait of independent director. Based on that, outside directors are more

favorable, as they have more independence from firm’s management (Dalton, Daily, Ellstrand

& Johnson, 1998). As a counter argument to favouring independent directors, they by their

20
nature have less information for monitoring and have difficulties obtaining it, as management

is reluctant to share important aspects of business (Adams and Ferrira, 2007; Harris and Raviv,

2008). Nonetheless, concealment of information from outside directors does not necessarily

have to be the case in every company or have a high scale. Reiter and Rosenberg (2003) claim

that independent directors can be highly valuable to the firms they serve when they are provided

with all useful and timely information. Low representation of outside directors in boards can

lead to an ineffectual oversight over firm’s decision, and failure to monitor management’s

activities objectively (Lorsch, Andargachew & Pick, 2001). Boards today tend to be more

independent, because companies aim for improved corporate governance mechanisms, higher

accountability and transparency. Presumably, companies also work on elimination of

information concealment issue. The role of board of directors is to monitor and provide

resources (Korn and Ferry, 1999), which in theory has a direct influence on firm performance.

The monitoring function implies regulation of managers on behalf of shareholders. Resource

dependence theory discusses how a board can contribute to accessing valuable resources and

states that gathering and exploiting them better than competitors is fundamental to success

(Rondøy, et al., 2006). Fama and Jensen (1983) claim that outside directors can perform the

function of supervision better, as most of them are among decision- members in other

organizations and are aware of another professional knowledge. This means by itself that

independent directors can be a source of mental resources that contribute to over performing

competitors and having higher returns. Furthermore, independent directors care about their

reputation and put much effort to improve it. On the whole, it is possible to expect a higher

number of independent members in a board to enhance firm’s performance due to their

unbiased opinion, extensive knowledge and experience.

21
2.6 BOARD OF DIRECTORS AND BANK PERFORMANCE

A number of papers investigate the effect of board size and composition on bank performance,

and the results are mixed. Simpson and Gleason (1999) find that a bank is less likely to get into

financial distress when the CEO is also the chairman of the board, while board size and

independence have no impact on the probability of getting into financial distress. Mishra and

Nielsen (2000) find that the relative tenure of independent outside directors has a positive

impact on bank performance. Belkhir (2009a) finds a positive relationship between board size

and bank performance as measured by Tobin‘s Q and return on assets. Belkhir (2009b)

examines several governance mechanisms simultaneously, and finds no evidence that board

size or composition is related to bank performance. Adams and Mehran (2011) find that board

size is positively related to bank performance, while independence is not related to

performance. Researchers have also reported international evidence. Kyereboah-Coleman and

Biekpe (2006) examine a sample of commercial banks in Ghana, and find a positive

relationship between board size and bank performance. They also find a positive relationship

between board independence and bank performance. Staikouras, Staikouras, and Agoraki

(2007) examine a sample of European banks, and find that board size is negatively related to

bank performance, while board composition has no impact on bank performance. Andres and

Vallelado (2008) use a sample of banks from different countries. They find an inverted U-

shaped relationship between bank performance and board size, and between bank performance

and board independence. Kaymak and Bektas (2008) use a sample of Turkish banks, and find

that the presence of insiders has a positive impact on bank performance, while duality and

board tenure have a negative impact on bank performance. Hagendorff, Collins, and Keasey

(2010) examine a sample of international banks, and find that board independence and diversity

improve bank performance, but only in countries with strict banking regulation regimes.

Chahine and Safieddine (2011) examine a sample of Lebanon banks, and find that board size

22
is positively related to bank performance. Finally, using a sample of Chinese banks, Rowe, Shi,

and Wang (2011) find that higher board ownership and more independence are related to better

bank performance.

2.6.1 BANK SIZE

Different researchers report an ambiguous relationship between the bank size and firm

performance (Agrawal and Knoeber, 1996; Himmelberg et al., 1999; Nenova, 2003; Durnev

and Kim, 2005).Short and Keasey (1999) and Joh (2003) argue that larger banks have better

opportunity than the smaller ones in creating and generating funds internally and accessing

external resources. In addition, larger banks might benefit from economies of scale by creating

entry barriers with a positive effect on firm performance. Furthermore, Jensen (1986) points

out that firm size may be used as a proxy for the agency problem. He reports that managers

have motivation to increase the firm size beyond the target which will indicate more power,

when the amount of assets under their control is larger. Fama and Jensen (1983), Booth and

Deli (1996) and Boone et al. (2007) argue that as the bank size increases the firm becomes

more diversified. This means that larger can explain the natural complexity of the company.

Also, it means that larger firms need more advice on the board. In addition, larger firms are

correlated with complex operations in order to pursue the company strategies more efficiently.

Serrasqueiro and Nunes (2008) recommend larger firm sizes to benefit performance.

This is because, large firms have better opportunity to raise funds and more diversified

strategies. In addition it has wide variety of expertise management. Black et al. (2006b) show

that the firm size positively affects firm performance. On the other hand, other researchers

(Nenova, 2003; Garen, 1994; Agrawal and Knoeber, 1996) report that large firms are subjected

to more inspections and scrutiny. Thus, it might be costly for the controlling families to extract

private profits (Nenova, 2003). Agrawal and Knoeber (1996) report a negative relationship

23
between the firm size and firm performance. They argue that larger firms might not be as

efficient as the smaller firms due to reduced control by management over strategic and

operational activities as firm size increases. Garen (1994) argues that the cost of complying

with corporate governance codes requirements will be comparatively low for the larger

companies. However, this cost will increase if the companies are subject to public media

scrutiny. This is because; they will be subject for high levels of media investigations than the

smaller companies. (Garen, 1994)

Finally, Jensen and Meckling (1976) argue that as the firm size increases the agency costs are

likely to increase. The increase of costs is due to the need for more control that resulted from

managerial discretion and opportunism. Moreover, the growth of the firm will result in

increasing the internal control tools for forecasting and designing. This will raise the need for

aligning the interest of the managers and the shareholders (Jensen and Meckling, 1976). In line

with previous studies (e.g., Muth and Donaldson, 1998; Elsayed, 2007; Topak, 2011; Al-Matari

et al., 2012; Lehn et al., 2009) who used total assets as a proxy for bank size, this study will

measure the bank size by using the natural logarithm of total assets.

2.7 FINANCIAL PERFORMANCE

In a study conducted by Collis and Jarvis (2006) on financial information and the management

of small private companies in the U.K., the most useful sources of information are the periodic

management account (i.e. the balance sheet and income statement), cash flow information and

bank statements (of course bank statement are another form of cash flow information but

generated externally). These sources of information are used by eight (80) per cent of

companies and this demonstrates the importance of controlling cash, which previous research

24
( Bolton, 1971, Birly & Niktari, 1995, Jarvis et al, 1996) suggest is critical to the success and

survival of a small business.

In the same research eight-seven (87) per cent of small companies’ prepared profit and loss

accounts and seventy-eight (78) per cent, balance sheet. These key financial statements allow

management to monitor profitability of the business as well as its net assets. Confirming the

usefulness of cash flow information, the analysis shows that seventy-three (73) per cent use

bank reconciliation statement and more than fifty-five (55) percent use cash flow statements

and forecast. However, other competitive performance measures perceived in literature such

as ratio analysis, industry trends and inter-firm comparison are not widely used. Collis and

Jarvis (2002) then states that this may indicate that small companies experience problems in

gaining access to appropriate benchmarks, but could also be the results of competitors filing

abbreviated accounts which reduces the amount of information available for calculating ratio

and making comparism. In addition, as many small companies operate in the service sector,

they occupy niche markets and may be less concerned with competition than those in other

markets.

Melse (2004), reports that ratio analysis provides an insight into the financial health of a firm

by looking into it liquidity, solvability, profitability, activity and capital and market structure.

Jooste (2004) investigates that many authors agree that cash flow information is a better

indicator of financial performance than traditional earnings. Largay and Stickney (1980) and

Lee (1982) show that profits were increasing, W.T. Grant and Laker Airways had severe cash

flow problems prior to bankruptcy. Jooste (2004) further states that users of financial

statements around the world evaluate the financial statements of companies to determine the

liquidity, assets activity, leverage, profitability and performance. Users of financial statements

25
use traditional balance sheet and income statements ratios for performance evaluation.

Therefore, along with traditional ratios, operating cash flow is also important when evaluating

a company’s performance (Jooste, 2004). Various literature states that the primary purpose of

the cash flow statement is to assess a company’s liquidity, solvency, viability and financial

adaptability. According to Everingham et al (2003) operating cash flow ratios are indicators of

performance.

Harker and Zenios (1998) define the performance of financial institutions as an economic

performance which is measured in both short and long-term by a number of financial indicators

such as price-to-earnings ratios, the firm’s stock beta and alpha, and Tobin’s. The financial

performance of Rural and Community Banks (RCBs) is influenced by internal factors or bank-

specific factors and external or macroeconomic factors. Zaman (2004) and Yaron (1998) have

studied the factors underlying improved financial performance of Rural and Community

Banks.

Yaron (1998) delved into three active Asian Rural and Community Banks which have achieved

leadership in the provision of financial services at unprecedented levels to millions of rural

households and micro enterprises. Zaman (2004) on the other hand conducted an in-depth study

into how four RCBs in Bangladesh have made great strides in financial intermediation. Both

Zaman (2004) and Yaron (1998 summarized the factors underpinning effective financial

performance as visionary leadership, management autonomy in formulating operational

policies, efficient staff recruitment and remuneration systems, innovative and technology-

driven products; flexible low-cost delivery system keen supervision of loan portfolio effective

management information system that promotes proper planning and enhances management

ability to control operational expenses and ensures adequate internal control systems. The

crucial influence of microeconomic stability and a conducive regulatory environment were also

alluded to.

26
2.8 EMPIRICAL LITERATURE

In Ghana, the evidence is not different from the existing literature. For example, Kyereboa-

Coleman and Biekpe (2006a; 2006b) found a negative association between board composition

and Ghanaian listed firm’s performance. This is supported by Owusu (2012) who found that

Non-Executive Directors to be statistically significant and negatively related to ROA among

Ghanaian listed firms. They argued that firms with higher proportions of Non-Executive

Directors are likely to experience lower performance because NEDs are part time workers,

unfamiliar with operations and company business, which are unable to comprehend the

complications and difficulties that face the company. They also argued that Non-Executive

Directors may not have total commitment to the cause of the firm because of outside

commitments. As a result, NEDs may not be on top of issues affecting the business and this

would limit their contribution to the performance of the firm.

By contrast, Adusei (2011) reported a significant positive relationship between board

composition and the financial performance of banks in Ghana. Abor and Biekpe (2007) also

reported a significant positive relationship between NEDs and firm performance among SMEs

in Ghana. Tornyeva & Wereko (2012); Kyereboa-Coleman and Amidu (2008) reported a

positive relationship between non-executive directors and firm performance among Ghanaian

insurance firms and listed companies respectively. They concluded that the greater percentage

of NEDs contribute positively to firm performance as a result of skills, experiences, and their

linkage to the external resources.

They conclude that the greater the percentage of NEDs in the board will result in better firm

performance and add value to the firm. This is because of close monitoring and their valuable

advices and contribution to the company. However, the Ghanaian SEC governance code (2003;

2010) and Bank of Ghana’s draft corporate governance regulations (2013) recommend a

27
balance of executive directors and non-executive directors on the board to monitor the activities

of management. This means that the inclusion of non-executive directors on the board should

therefore ensure effective monitoring of the executive directors whose interests are not aligned

with shareholder value maximization.

2.9 RESEARCH GAP

From the above studies most work on effect of board characteristics on performance were

mostly done on commercial and universal banks. However, our work will focus on rural

banking. Secondly, little reference can be found or made from an African perspective on terms

of the influence of corporate governance structure on the financial performance of universal

banks. This study will make an original contribution to knowledge by examining the

development of corporate governance practices in the social, political and economic

environments of the Ghana as a particular case among the Sub-Sahara African countries. The

proposed study besides filling these research gaps will also contribute to the policy and

development of bank governance structures in Ghana.

28
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 INTRODUCTION

The purpose of this chapter is to describe the research methodology of this study. The aim of

this study is to test the effects of board characteristics on bank performance, the design of the

methodology is based on prior research on these relationships. This chapter focuses on the

information of the financial statement of South Akim Rural Bank Koforidua, on how

information is obtained and how the information will be utilized. The chapter is presented under

the following headings: the research design, source of data, method of data analysis, and the

profile of the organization under study.

3.2 RESEARCH DESIGN

The study employed case study design. Yin (2003) defines the case study as an empirical tool

that investigates a contemporary phenomenon within its real-life context. Saunders (2007),

defines research design as the general plan of how the research would be answered. It is the

conceptual structure within which research is conducted. It constitutes a blue print for the

collection, measurement and analysis of data.

3.3 DATA COLLECTION PROCEDURE

Before conducting the data collection exercise, the researcher collected an introductory letter

from the Student Affairs, All Nations University College to obtain permission to collect data

from the selected departments. . The researcher visited the selected department of South Akim

Rural Bank, Koforidua and first explained the purpose of the study to the heads of department

and their staff.

29
3.4 POPULATION OF THE STUDY

According to Burns and Grove (1993), a population is defined as all elements (individuals,

objects and events) that meet the sample criteria for inclusion in a study. The study population

of this is consisted of employees and customers of South Akim Rural Bank. The estimated

population for this study is 214.

3.5 SAMPLING TECHNIQUES AND SAMPLE SIZE

Sampling is a key component of any investigation and involves several considerations. The

aim of most investigations is to obtain information about a population. A sample of the

population is taken for analysis. Overall, a sample size of 35 was considered for this study. The

sampling techniques used for this study convenience sampling techniques. Convenience

sampling was used to select 35 employees and customers to participate in the study. The

selection of the sample was not based on chance selection but rather the readiness and

availability of the respondents.

3.6 INSTRUMENT FOR DATA COLLECTION

The study relied on both primary and secondary data. Primary data was collected with the use

of questionnaires and secondary data was also obtained from external sources such as the

internet, Journals of change and other documentations. The purpose of sourcing for secondary

data was to help in the formation of problems, literature review and construction of

questionnaire.

30
3.6.1 Primary Sources

Primary data refers to data collected by the researcher for a particular need as is encapsulated

in the research objectives. Self-administered questionnaires and informal interviews were the

techniques used in gathering primary data.

3.6.2 Secondary Sources

This refers to type of data that had previously been used. Examples include; published articles.

Data was also gathered from the websites, journals, books, newspapers, magazines.

3.7 DATA COLLECTION INSTRUMENT

A questionnaire was chosen as the main data collection instrument. A questionnaire is a printed

self-report form designed to elicit information that can be obtained through the written

responses of the respondents. The information obtained through a questionnaire is similar to

that obtained by an interview, but the questions tend to have less depth (Burns and Grove,

1993). It was adopted from previous works (Oballah et al., 2015 and Anichebe and Agu, 2013)

but the researcher designed it to suit the objectives of the study in order to solicit answers that

would meet the objectives. The data was collected over a period of one month. Before the

questionnaires were administered, permission was sought from the respondents. The researcher

did first pre-test of the questionnaire to ensure that the objectives were met. The purpose of the

pre-test activity was to ensure that the questionnaires are meaningful, easily understood and

appropriate for the main fieldwork. The activity enabled the researcher to become more

familiar with items of the questionnaires and prepare them accurately for the main work.

31
3.8 DATA ANALYSIS

Data from the bank will be analyzed using the tools such as ratios analysis, chart and graphs

will also be used to explain the data collected. The data from the respondents will be first edited.

Individual items on the questionnaires were edited in line with the responses given. The raw

data was then organized bearing in mind the research questions for which the instruments were

designed. Analysis of the data involved the coding of items in the questionnaires and feeding

them into a computer for analysis. Descriptive statistics in the form of frequencies and

percentages were used in presenting the data and these were combined with tools from the

Statistical Product and Service Solutions (SPSS) software to analyses the data gathered.

Pictorial representations were also used to make the descriptions more vivid.

3.9 HISTORY OF SOUTH AKIM RURAL BANK

South Akim Rural Bank Limited was established on 25th August, 1984 and was commissioned

on 2nd November, 1984. The key promoters of the bank were the late Major (Rtd) Samuel

Boadi Gyasi, one time Managing Director of the Produce Buying Company (PBC). He together

with the late Chief of Nankese Nana Ayim Gyasi II, the late Nana Adarkwa Yiadom Odikro of

Nankese, the late Mr. Godfred Daniel Asante and Mr. Benjamine Atta Koranteng promoted the

bank. Some of the initial directors were Mr. M. N. A. Afrifa-Gyasi, the late Chief Farmer of

Nankese Nana Kwabena Donkor Yirenkyi, late Mr. F, N, Gyasi, Mr. A. B. Asante, Mr. George

Diabene Agyakwa and Mr. Adams Henaku (Rep. of the Bank of Ghana). These people together

with many shareholders helped to establish the bank. The Bank started operations with a staff

of five (5). The Head Office of the Bank is located at Nankese a town in the Suhum Kraboa-

Coalter District of the Eastern Region. After its commencement in November, 1984 the Bank

extended its operations to the district headquarters at Suhum in September, 1987. After a long

break for consolidation, another agency was opened at Koforidua on 8th October, 1993. The

32
Asamankese Agency was opened on 3rd February, 1995. The Adoagyiri Agency was also

opened on 6th November, 2006 and Osenase Agency was also officially opened on 26th

August, 2010. Full scale banking services are provided at all these agencies. From the initial

staff strength of five (5). Almost the entire population of the catchments area is engaged in

farming, mostly Cocoa, Food crops and Vegetable farming as well as in rural industries such

as distilling of liquor, wood charcoal production, basket weaving, transportation, timber

production and stone quarrying. The bank provides services to a large number of salaried

workers who are paid by the Accountant General and other employers as well as to educational

institutions, religious bodies, social organizations and district assemblies. A lot of investment

has been made in computerizing and networking all its branches.

33
 CHAPTER FOUR

DATA RESENTATION, ANALYSIS AND INTERPRETATION

4.0 INTRODUCTION

This chapter deals with the presentation and analysis of the data collected using the

questionnaires administered to the sample of respondents. The chapter consist of the

background analysis of the characteristics of the correspondents through personal data and the

analysis of all relevant data having a bearing on the research questions. The analysis was

presented using tabular illustration.

4.1 REPRESENTATION AMD ANALYSIS OF PERSONAL DATA

TABLE 4.1 GENDER

Table 4.1 Gender

Frequency Percent Valid Cumulative Percent
Percent
Male 17 48.6 51.5 51.5
Valid Female 16 45.7 48.5 100.0
Total 33 94.3 100.0
Missing System 2 5.7
Total 35 100.0
Source: Field survey, 2020
Table 4.1 shows the gender distribution of respondent of South Akim Rural Bank. Out of 35
respondents 17 representing 48.6% are Males and the remaining 16 respondent’s representing
45.7% are females. From this analysis above it can be concluded that there is male dominant
employees at South Akim Rural Bank.

34
4.1.2 AGE GROUP
Table 4.2 Age group

Frequency Percent Valid Percent Cumulative Percent

20-29 3 8.6 9.1 9.1

30-39 12 34.3 36.4 45.5
Valid 40-49 16 45.7 48.5 93.9
above 50 2 5.7 6.1 100.0
Total 33 94.3 100.0
Missing System 2 5.7
Total 35 100.0
Source: Field survey, 2020

Table 4.2 shows age group of respondents out of total of 35 respondents 8.6% of the
respondents are between 20-29 years, 34.3% of the respondents are between 30-39 years,
45.7% of the respondents are between 40-49 years, while the remaining 5.7% respondents
were above 50 years. From the analysis above it can be concluded that majority of the
respondent are between 40-49 years and this group of people are in their active age.

35
4.1.3 DEPARTMENT

Table 4.3 Department

Frequenc Percent Valid Cumulative Percent
y Percent
Marketing 6 17.1 18.2 18.2
Credit 9 25.7 27.3 45.5
Audit 3 8.6 9.1 54.5
Operations 7 20.0 21.2 75.8
Valid
Risk
2 5.7 6.1 81.8
Compliance
Microfinance 6 17.1 18.2 100.0
Total 33 94.3 100.0
Missing System 2 5.7
Total 35 100.0
Source: field survey, 2020

Table 4.3 shows the department of respondents out of table of 35 respondents 17.1% are in
marketing department, 25.7% are in credit department, 8.6% are in audit department, 20.0%
are in operations department, 5.7% are in Risk and complains department while the remaining
17.1% are in micro finance department. From the analysis, it can be concluded that majority of
the respondents are in the credit department.

36
4.1.4 MARITAL STATUS

TABLE 4.4 Marital Status

Frequenc Percent Valid Cumulative Percent
y Percent
Single 13 37.1 39.4 39.4
Marrie
Valid 20 57.1 60.6 100.0
d
Total 33 94.3 100.0
Missing System 2 5.7
Total 35 100.0
Source: field survey, 2020
Table 4.4 shows marital status of respondents. Out of total of 35 respondents 37.1% are single
while the remaining 57.1% are married. From the analysis above it can be concluded that
majority of the respondent are married are can further be inferred that the respondents are
responsible.

4.1.5 QUALIFICATION

Table 4.5 Highest Qualification

Frequenc Percent Valid Cumulative Percent
y Percent
Certificat
1 2.9 3.0 3.0
e
Degree 24 68.6 72.7 75.8
valid Masters 3 8.6 9.1 84.8
Others 5 14.3 15.2 100.0
Total 33 94.3 100.0
Missing System 2 5.7
Total 35 100.0
Source: field survey, 2020
Table 4.5 shows qualification of respondents. Out of total of 35 respondents, 2.9% are
certificate holders, 68.6% are degree holders, 8.6% are masters whiles the remaining 14.3 are
other holder. It can be concluded from the analysis that majority of the respondents are degree
holders and therefore are highly educated.

37
4.1.6 YEARS OF WORK EXPERIENCE

TABLE 4.6 Years of work experience

Frequency Percent Valid Cumulative Percent
Percent
5.00 3 8.6 9.1 9.1
6.00 2 5.7 6.1 15.2
7.00 1 2.9 3.0 18.2
8.00 3 8.6 9.1 27.3
9.00 2 5.7 6.1 33.3
10.00 6 17.1 18.2 51.5
12.00 3 8.6 9.1 60.6
13.00 3 8.6 9.1 69.7
Valid 14.00 1 2.9 3.0 72.7
15.00 1 2.9 3.0 75.8
16.00 3 8.6 9.1 84.8
18.00 1 2.9 3.0 87.9
19.00 1 2.9 3.0 90.9
22.00 1 2.9 3.0 93.9
24.00 1 2.9 3.0 97.0
25.00 1 2.9 3.0 100.0
Total 33 94.3 100.0
Missing System 2 5.7
Total 35 100.0
Source: field survey, 2020

Table 4.6 shows years of working experience of respondents. Out of total of 35 respondents,
8.6% said 5yers, 5.7% said 6 years, 2.9% said 7years, 8.6% said 8years, 5.7% said 9years,
17.1% said 10years, 8.6% said 13years, 2.9% said 14years, 2.9 said 15years, 8.6% said 16years,
2.9% said 18years, 2.9%said 19years, 2.9% said 22years, 2.9% said 24years, whiles the
remaining 2.9% also said 25years. From the above analysis, it can be concluded that most of
the employees have worked in the company for 10years there the company has a low attrition
rate.

38
4.1.7 YEARS ORGANIZATION HAS ACTIVELY BEEN IN OPERATION

TABLE 4.7 Years Organization has been in operation

Frequency Percent Valid Cumulative Percent
Percent
Above 15
Valid 33 94.3 100.0 100.0
years
Missing System 2 5.7
Total 35 100.0
Source: field survey, 2020

Table 4.7 shows years’ organization has actively been in operation. Out of total of 35
respondents, 33 representing 94.3% are above 15 years. From this analysis above it can be
concluded that the organization has actively been in operation for more than 15 years.

4.2 PRESENTATION AND ANALYSIS OF RESEARCH OBJECTIVE ONE: TO

IDENTIFY THE BOARD CHARACTERISTICS AT SOUTH AKIM RURAL BANK,
KOFORIDUA.

4.2.1 BOARD CHARACTERISTICS IN SOUTH AKIM RURAL BANK, KOFORIDUA

TABLE 4.8 Board Characteristics In Your Organisation

Frequenc Percent Valid Cumulative Percent
y Percent
Valid Yes 33 94.3 100.0 100.0
Missing System 2 5.7
Total 35 100.0
Source: field survey, 2020

Table 4.8 shows board characteristics in South Akim Rural Bank. Out of total of 35
respondents, 94.3% ticked yes. It can be concluded from the above table that in South Akim
Rural Bank there is good corporate governance because of the existence of Board
Characteristics.

39
4.2.2 CHARACTERISTICS OF THE BOARD IN SOUTH AKIM RURAL BANK,
KOFORIDUA.

Table 4.9 Characteristics of the Board in Your Organisation

Frequency Percent Valid Cumulative Percent
Percent
Independent of board
5 14.3 15.2 15.2
members
Proactive 7 20.0 21.2 36.4
board 3 8.6 9.1 45.5
Very competent 3 8.6 9.1 54.5
Valid Diligent in decision
12 34.3 36.4 90.9
making
High knowledge of
Financial management
Small size of the board 3 8.6 9.1 100.0
Total 33 94.3 100.0
Missing System 2 5.7
Total 35 100.0
Source: field survey, 2020

Table 4.9 shows some of the characteristics of board in South Akim Rural Bank. Out of total
of 35 respondents, 12 representing 34.3% mentioned High knowledge of Financial
Management as the main characteristic of board members. On the other hand 7 representing
20.0% mentioned Proactive board as a characteristic of board members at South Akim Rural
Bank. From the above table it can be concluded that the employees are aware of the various
board characteristics that functions in the company with that idea the board is effective in the
South Akim Rural Bank, Koforidua.

40
4.3. RESEARCH OBJECTIVE TWO: RELATIONSHIP BETWEEN BOARD
CHARACTERISTICS AND FINANCIAL PERFORMANCE OF SOUTH AKIM
RURAL BANK, KOFORIDUA.

4.3.1 Relationship between corporate governance and financial performance

Table 4.10 There is a strong relationship between corporate governance and financial
performance of South Akim Rural Bank, Koforidua
Frequenc Percent Valid Cumulative Percent
y Percent
Agree 2 5.7 6.1 6.1
Strongly
Valid 31 88.6 93.9 100.0
Agree
Total 33 94.3 100.0
Missing System 2 5.7
Total 35 100.0
Source: field survey, 2020

Table 4.10 shows strong relationship between board characteristics and financial performance
in South Akim Rural Bank. Out of the total of 35. Respondents, 5.7 agree to the statement
while 88.6 strongly agree to the statement. From the analysis above, it can be concluded that
there is a strong relationship between board characteristics and financial performance of South
Akim Rural Bank. The link between board characteristics and financial performance in South
Akim is stemmed by the strong relationship that exist in the company.

41
4.3.2 TO WHAT EXTENT DOES BOARD CHARATERISTICS AFFECT FINANCIAL
PERFORMANCE.

4.3.1 Performance Rating

Table 4.11 performance rating

Frequency Percent Valid Cumulative Percent
Percent
Highly
Valid 33 94.3 100.0 100.0
Effective
Missing System 2 5.7
Total 35 100.0
Source: field survey, 2020
Table 4.11 shows rating of respondents, out of the total of 35 respondents, 94.3 ticked highly
effective. From the above analysis, it can be concluded that to a board characteristics strongly
affect the financial performance in south Akim Rural Bank and has gone further to positively
increase productivity and profit margin.

4.4 RESEARCH OBJECTIVE THREE: EXAMINE THE EFFECT OF BOARD

CHARACTERISTICS ON FINANCIAL PERFORMANCE OF SOUTH AKIM RURAL
BANK, KOFORIDUA.
Table 4.12 Effect of corporate governance on financial performance of South Akim Rural
Bank, Koforidua.
Frequency Percent Valid Percent Cumulative Percent
High Extent 28 80.0 84.8 84.8
Valid Fair Extent 5 14.3 15.2 100.0
Total 33 94.3 100.0
Missing System 2 5.7
Total 35 100.0
Source: field survey, 2020

Table 4.12 shows effect of corporate governance on financial performance of organisation. Out
of the total of 35 respondents 80% selected high extent to the statement, while 14.3% selected
fairly extent. From the analysis above, it can be concluded that there is a high effect of board
characteristics on financial performance of South Akim Rural Bank, Koforidua

42
Table 4.13
One-Sample Test
Test Value = 0
95% Confidence Interval of the
Mean Difference
t Df Sig. (2-tailed) Difference Lower Upper
Relationship between
municipal audit
52.644 34 .000 3.693 3.59 3.80
committee and internal
audit unit at NJSMA

To examine the effect of corporate governance on financial performance of rural banks. The

main indicators were ranked using a five point Likert Scale. The indicators include board

characteristics and financial performance. The values assigned to the response had 1

representing “weak agreement” or strongly disagreement rising up to 5 representing “strong

agreement”. To measure the extent of effect between the two variables, the researcher employs

a modify version of Eta Square, which is given by the formula:

t2 ,
EtaSquare =
t2+N−1

Where: 0.01 = small effect, 0.06 = moderate effect, 0.14 = large effect. t= t-value; N-1= degree

of freedom (t= 70.644 and N=35), EtaSquare = 0.6121 and therefore there is a significant large

effect on financial performance by board characteristics of South Akim Rural Bank, Koforidua.

43
 CHAPTER FIVE

SUMMARY OF FINDINGS, RECOMMENDATIOS AND CONCLUSIONS.

5.0 Introduction

This chapter presents the summary of the findings of the study, draws conclusions from the

study and also makes recommendations for the study. The Chapter is divided into three (3)

segments. The segments are as follows;

5.1 Summary of findings

5.2 Recommendations

5.3 Conclusion

5.1 SUMMARY OF FINDINGS

The summary of findings is organized around the questionnaire which was based on the

research objectives of the study.

5.1 SUMMARY OF FINDINGS

Research objective one: Identify the board characteristics at South Akim Rural Bank,

Koforidua.

Based on research objective one, it was found that board characteristics exist in the Bank. Some

of the stated board characteristics are proactive members in the financial sector, highly

44
knowledgeable on financial management, dynamic in decision making, board size, and

independence of the board, board diligence, and qualification of board members.

Research objective two: Examine the extent to which board characteristics affect financial

performance of South Akim Rural Bank, Koforidua. Based on the research objective two, it

was found that board characteristics highly affect the financial performance of the bank.

Research objective three: Examine the effect of board characteristics on financial performance

of Rural Banks. Upon our research done, it was observed that there is a significant large effect

on financial performance by board characteristics of South Akim Rural Bank, Koforidua.

Therefore the role of corporate governance is very essential in the governing of effective banks.

As the year go by, there was an improvement of corporate governance practice in most of the

selected banks which is said to be a positive note with respect to governing of a financial

institution.

5.2 RECOMMENDATIONS

First, one of the key policy recommendation is that South Akim Rural Bank, Koforidua need

to have a board made up of non-executive directors. Having a board of directors with majority

of outsiders has been shown to be important for improving the performance of Ghanaian rural

banks. It is established in this study that outside directors are often in position to guide bank

management on how to be cost efficient. From the empirical findings, it has been revealed that

outside directors bring independence of mind and judgement on issues of strategy and

governance in the running of the banking business and that they also themselves as assisting in

enhancing the prosperity of the business, plays an important role in improving the performance

of the business.

45
5.3 CONCLUSION

In conclusion, the study revealed that high knowledge of financial management is the main

characteristics of board members as per the study. Also there is a strong relationship between

board characteristics and financial performance. Lastly the characteristics of the board as a

whole has a large effect on the financial performance of South Akim Rural Bank, Koforidua.

46
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52
 APPENDIX: QUESTIONAIRESFOR EMPLOYEE

This questionnaire is designed to collect data to be used purely for an academic purpose. The
data will help the researcher to meet the requirements for the of BBA degree from All Nations
University College. I wish to assure you that all responses to these questions will be strictly
confidential. That you for your cooperation and time.

DEMOGRAPHIC PROFILE

These questionnaires are to assist the researchers in getting information from clients to achieve
the research objectives for the topic: Board characteristics and its effect on financial
performance of rural banks in Ghana”. All information provided in this study will be treated
as confidential and your anonymity is assured.

1. Name of participant:
……………………………………………………………………………….

2. Age: (Please tick one) 10-19 20-29 30-39 40-49 50-59 60-69 Over
70y

3. Gender: MALE FEMALE

4. Department:
…………………………………………………………………………………………
……….

5. Marital status: SINGLE MARRIED

53
 6. What is your highest qualification achieved?

i. Certificate [ ] ii. Degree [ ] iii. Masters [ ] iv. Others (please specify)…

7. How many years have you been working in the MFI? (PLEASE INDICATE YEARS)
…………………………………………….

8. How many years has your MFI been in operation?

i. 1– 5 years [ ] ii.6 – 10 years [ ] iii.11 – 15 years [ ] iv. Above 15 years [ ]

SECTION B: RESEACH OBJECTIVES

8. Are you aware of the board characteristics in your organisation?
i. Yes [ ] ii. Not sure [ ] iii. No [ ]

9. What are some of the characteristics of the board in your organisation?

___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________

54
10. How will you rate the following board characteristics in affecting financial performance
of your institution?

Item Highly effective (3) Fairly effective (2) Not effective (1)
Board size

Independence of board members

Financial expertise of board

members
Board Diligence

Board structure

Qualification of board members

11. In your opinion to what extent does corporate governance affect the financial
performance of your organisation. i. High extent [ ] ii. Fair extent [ ] iii. Low extent [ ] iv.
No extent [ ]

55
12. Please tick (√) where appropriate.

Item Strongly Disagree Neutral Agree Strongly

Disagree (1) (2) (3) (4) Agree (5)
1. There is a strong
relationship between
corporate governance and
financial performance of
South Akim Rural Bank

2. Corporate governance
has positive effect on the
financial performance of
South Akim Rural Bank

3. There is a strong
relationship between
board characteristics and
financial performance of
South Akim Rural Bank

56