The purpose of this paper is to document the effect of ownership structure and corporate governance on bank efficiency in the Ghanaian banking industry.
The author applies both accounting data and efficiency measures from the period 1999‐2007 via panel data analysis. Efficiency is measured by computing distances from the stochastic frontiers of estimated translog cost and profit functions. These efficiency measures are regressed on ownership and governance variables with dummy variables for bank types.
The results show that foreign banks are more cost‐efficient than domestic banks, but not necessarily more profit‐efficient. Nevertheless, foreign banks are more profitable than domestic banks and enjoy better quality loans. Managerial ownership leads to the cost inefficiency of banks. Banks with inside ownership are unprofitable overall but maintain a high loan quality. Governance (a larger board size) strongly improves profit efficiency but slightly worsens banks' cost efficiency. Finally, the capital adequacy ratio and bank size are both significant predictors of bank efficiency in Ghana.
Few, if any, studies have been carried out in the Ghanaian banking industry.
