Corporate Governance And Financial Distress Among Universal Banks In Ghana.

Abstract

The corporate world have been hit by or experienced a series of financial crisis across the globe in all spheres of economic endeavors which have over the years abruptly ended the lives of many corporate bodies which hitherto appeared with great potentials. The Ghanaian banking sector has not been spared of such a cancerous phenomenon, with the recent one causing the collapse of a number of banks, some of which appeared among the parents in the industry. Nonetheless, banks are predisposed banks are predisposed the risk of financial distress owing to the nature of their activities. This has necessitated the need to continually consider possible means of mitigation and hence the look into corporate governance and financial distress. This study adopts an approach that allows for a comprehensive view of the relationship between corporate governance and financial distress, that is the use of an endogenous switching regression model approach which provides a basis for a more comprehensive and a better look at relationships compared to the traditional logistics model, employed in previous studies that looked at the relationship between corporate governance and financial distress. The study revealed that, firms with strong corporate governance have less probability of financial distress whiles firms with weak corporate governance are more probable to financial distress. Also, employing an unbalanced panel data with random effects generalized least squares regression, the study revealed that, Profitability, Liquidity and Overly Aggressive Activity were crucial determinants of Financial Distress among Ghanaian universal banks. Moreover, a counterfactual analysis employed by the study to measure the marginal effect of Corporate Governance on financial distress revealed a positive transitional heterogeneity, indicating that, there is an effect of improved corporate governance on financial distress.