Corporate govenance and related party transactions among banks in ghana

Governance practices in the banking and financial industry cannot be overemphasised. The reasons being that, accounting and corporate governance related scandals and collapse of several banks in recent times have raised considerable concern among regulators and academicians about related party transaction and the recent re-capitalisation by the Bank of Ghana and issues surrounding dealings with related parties were central in every discussion. This study therefore examines whether there is a relationship between corporate governance and related party transactions. Specifically, the study sought to examine the effect that board size, board independence and size of board’s audit committee have on the firms’ related party transactions. This study uses a sample of publicly listed banking firms on Ghana Stock Exchange for the periods ending 2013 and 2017. In all, 7 out of the 9 listed banks, representing 77.78% were used for this study and data gathered from their annual reports was used. After carrying out some diagnostic and specification tests to address the basic assumptions of the Classical Linear Regression Model (CLRM), regression was carried out using Statistical software package, STATA version 15.

The study revealed that board size has a significantly negative effect on the firms’ related party transactions. This research provides evidence that the size of the board can reduce the total amount of related party transaction. On the other hand, the study uncovered that board independence and the size of audit committee have positive and insignificant relationship with related party transactions and the inference here is that banks can have non-executive independent board members and audit committee members but if they are not strict and professional, there won’t be able to reduce related party transactions of which they themselves are beneficiaries sometimes. It was also revealed that, there is a significantly positive relationship between foreign ownership and related party transactions. An indication that most of the foreign-owned banks in Ghana engage in more related party transactions. However, the study revealed that the size of the firm has no influence on the total amount of related party transactions.