Corporate Governance and Firm Performance in Africa: A Dynamic Panel Data Analysis

Abstract

The study examined the effect of corporate governance on the performance of firms in Africa by using both market and accounting based performance measures. Unique data from 103 firms drawn from Ghana, South Africa, Nigeria and Kenya covering the five year period 1997-2001 was used and analysis done within the dynamic panel data framework. Results indicate that the direction and the extent of impact of governance is dependent on the performance measure being examined. Specifically, our findings show that large and independent boards enhance firm value and that combining the positions of CEO and board chair has a negative impact on corporate performance. We also find that CEO’s tenure in office enhances a firm’s profitability whiles board activity intensity affects profitability negatively. The size of audit committees and the frequency of their meetings have positive influence on market based performance measures and that institutional shareholding enhances market valuation of firms. For enhanced performance of corporate entities, we recommend a clear separation of the positions of CEO and board chair and also to maintain relatively independent audit committees.