Asiamah, Sampson; Appiah, Kingsely Opoku; Badu, Ebeneze Agyemang
A icle
Do boa d cha ac e is ics mode a e capi al adequacy
egula ion and bank isk- aking nexus in Sub-Saha an
A ica?
Asian Jou nal o Economics and Banking (AJEB)
P o ided in Coope a ion wi h:
Ho Chi Minh Uni e si y o Banking (HUB), Ho Chi Minh Ci y
Sugges ed Ci a ion: Asiamah, Sampson; Appiah, Kingsely Opoku; Badu, Ebeneze Agyemang (2024) :
Do boa d cha ac e is ics mode a e capi al adequacy egula ion and bank isk- aking nexus in Sub-
Saha an A ica?, Asian Jou nal o Economics and Banking (AJEB), ISSN 2633-7991, Eme ald, Leeds,
Vol. 8, Iss. 1, pp. 100-120,
h ps://doi.o g/10.1108/AJEB-08-2022-0108
This Ve sion is a ailable a :
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Do boa d cha ac e is ics mode a e
capi al adequacy egula ion
and bank isk- aking nexus
in Sub-Saha an A ica?
Sampson Asiamah
Depa men o Business, P empeh College, Kumasi, Ghana
Kingsely Opoku Appiah
Depa men o Accoun ing and Finance,
Kwame Nk umah Uni e si y o Science and Technology, Kumasi, Ghana, and
Ebeneze Agyemang Badu
Depa men o Ag icul u al Economics and Ex ension Educa ion,
Aken en Appiah-Menka Uni e si y o Skills T aining and
En ep eneu ial De elopmen , Asan e Mampong Campus, Asan e -Mampong, Ghana
Abs ac
Pu pose –The pu pose o his pape is o examine whe he boa d cha ac e is ics mode a e he ela ionship
be ween capi al adequacy egula ion and bank isk- aking o uni e sal banks in Sub-Saha an A ica (SSA).
Design/me hodology/app oach –The pape uses 700 bank-yea obse a ions o uni e sal banks in SSA
be ween 2009 and 2019. The pape u he uses he wo-s ep gene alized me hod o momen s as he baseline
es ima o .
Findings –The pape inds ha capi al adequacy egula ion is posi i ely ela ed o o e all bank and liquidi y
isks. None heless, capi al adequacy egula ion inc eases c edi isk in he sampled banks. The pape u he
epo s ha boa d cha ac e is ics indi idually and signi ican ly mode a e he ela ionship be ween capi al
adequacy egula ion and isk- aking.
P ac ical implica ions –The indings ha e implica ions o egula o s o uni e sal banks ha boa d
cha ac e is ics ma e o capi al adequacy egula ion o impac isk- aking beha io .
O iginali y/ alue –The pape ex ends he exis ing li e a u e on he e ec o boa d cha ac e is ics on he
capi al adequacy egula ions and isk- aking beha io nexus o uni e sal banks.
Keywo ds Capi al adequacy, Risk- aking, Uni e sal banks, Sub-Saha an A ica (SSA)
Pape ype Resea ch pape
1. In oduc ion
Banks’ isk- aking beha io has ecei ed signi ican in es iga ion in ecen yea s ollowing
he collapse o uni e sal banks and o he deposi o y ins i u ions in some eme ging economies
(Dweka e al., 2020;Nguyen, 2021). E idence exis s o conclude ha excessi e isk- aking
coupled wi h egula o y ailu es is pa ly esponsible o he ecen inancial c isis in inancial
ins i u ions. O e he yea s, a ious heo e ical p eposi ions and in e en ions ha e been
sugges ed o educe he le el o a ious isks o banks and o s eng hen and sus ain he
inancial sys ems o eme ging economies. These p eposi ions include he adop ion o capi al
AJEB
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© Sampson Asiamah, Kingsely Opoku Appiah and Ebeneze Agyemang Badu. Published in Asian
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h ps://www.eme ald.com/insigh /2615-9821.h m
Recei ed 16 Augus 2022
Re ised 6 Feb ua y 2023
14 Ma ch 2023
Accep ed 24 Ap il 2023
Asian Jou nal o Economics and
Banking
Vol. 8 No. 1, 2024
pp. 100-120
Eme ald Publishing Limi ed
e-ISSN: 2633-7991
p-ISSN: 2615-9821
DOI 10.1108/AJEB-08-2022-0108
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adequacy egula ion. Following i s wide adop ion, i s e ec i eness in educing he
isk- aking beha io s o banks has ecei ed a lo o a en ion. Se e al empi ical s udies
ha e shown in e es in in es iga ing he ela ionship be ween capi al adequacy policy and
he isk- aking beha io o banks (Dweka e al., 2020;Gue e o-Villegas e al., 2018).
Howe e , he indings o hese s udies ha ebeen inconsis en and con adic o y. Dweka e al.
(2020) ind a posi i e bu insigni ican associa ion be ween bank egula ions and supe ision
on banks’ isk- aking. Howe e , o he s udies (Gue e o-Villegas e al., 2018;Sh ie es and
Dahl, 1992;Jacques and Nig o, 1997) epo a nega i e ela ionship be ween bank egula ion
and he isk- aking o banks. Gi en he mixed indings, he e ha e been ecen calls (see
Nwude and Nwude, 2021;Nguyen e al., 2021;Go indan e al., 2021) o he ela ionship
be ween capi al adequacy egula ion and isk- aking o be e-examined o gain addi ional
insigh on he capi al adequacy egula ion and isk- aking nexus.
Mo eo e , p io s udies adop a simple model o in es iga e he di ec ela ionship
be ween capi al adequacy egula ion and bank isk- aking while igno ing he co po a e
boa d s uc u e ha can a ec he e ec i eness o he bank o success ully implemen
policies. In pa icula , p io s udies did no conside he po en ial mode a ing ole o boa d
cha ac e is ics on he ela ionship be ween capi al adequacy egula ion and isk- aking
ela ionships. This no iceable limi a ion in p io s udies has mo i a ed his pape . In his
pape , we conjec u e ha boa d cha ac e is ics mode a e he ela ionship be ween capi al
adequacy egula ion and a bank’s isk- aking beha io . We u he conjec u e ha a ailu e o
accoun o boa d cha ac e is ics as a mode a ing mechanism migh be esponsible o he
mixed indings be ween capi al adequacy egula ion and bank isk- aking in he p io
empi ical li e a u e. The e is a con incing heo e ical and concep ual basis o a gue ha
capi al adequacy egula ion and isk- aking nexus is in luenced by boa d cha ac e is ics.
Many s udies (see Agyemang and Appiah, 2017) a gue ha boa d cha ac e is ics play an
impo an ole in he success ul implemen a ion o egula ions and supe ision policies,
including capi al adequacy egula ions. Boa d o di ec o s, as pa o hei esponsibili ies, is
o ensu e ha he bank complies wi h all he egula o y equi emen s. This includes capi al
adequacy egula ion. Howe e , achie ing such a egula o y equi emen is dependen on he
e ec i eness o he boa d. The p eposi ion o capi al adequacy heo y is ha he main
objec i e o capi al egula ion in he banking sec o is o p e en manage s and owne s om
aking excessi e isks (Kim, 2015;Zhongming e al., 2019).
Also, e idence exis s o demons a e ha e ec i e boa d cha ac e is ics a e able o educe
manage s’excessi e isk- aking beha io . Conside ing he ac ha boa d cha ac e is ics can
in luence compliance wi h egula o y equi emen s and isk- aking, boa d cha ac e is ics can
be expec ed o mode a e he ela ionship be ween capi al adequacy egula ion and bank
isk- aking. None heless, p io s udies ela ed o he in luence o a ious boa d cha ac e is ics
on he ela ionship be ween capi al adequacy egula ion and bank isk- aking beha io a e
a e. Acco dingly, he pape aims o in es iga e he in luence o a ious boa d cha ac e is ics
on he ela ionship be ween capi al adequacy egula ion and bank isk- aking beha io in
selec ed uni e sal banks in Sub-Saha an A ica (SSA). We include Boa d size (BODSIZE),
boa d independence (BIND) and boa d gende di e si y (BGD) as keyboa d cha ac e is ics
because hey a e mos ly used in p io boa d, bank isk- aking beha iou and capi al
egula ion s udies.
Consequen ly, his pape con ibu es o he li e a u e in se e al ways. Fi s , he pape
adds o he exis ing li e a u e by demons a ing ha capi al adequacy egula ion is a
signi ican d i e o isk- aking beha io educ ion. Al hough ex ensi e li e a u e exis s, he
indings ha e been mixed, ambiguous and inconclusi e. Hence, his pape p o ides u he
e idence. Second, he pape ex ends he dynamic ela ionship be ween capi al adequacy
egula ions and isk- aking beha io . Unlike p io s udies ha examined he di ec
ela ionship be ween capi al adequacy egula ion and bank isk- aking, his pape u he
Boa d
cha ac e is ics
e ec in
uni e sal banks
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examines how boa d size, independence and gende di e si y po en ially in luence he
ela ionship be ween capi al adequacy egula ion and isk- aking beha io . This will
p o ide u he insigh in o how capi al adequacy egula ions impac on banks’ isk- aking.
Thi d, he s udy was conduc ed in selec ed de eloping economies. The e a e unique ea u es
o SSA ha p o ide a compelling case o examine he mode a ing ole o boa d
cha ac e is ics in he ela ionship be ween capi al adequacy egula ion and bank
isk- aking. SSAs a e cha ac e ized by weak co po a e go e nance and a agile inancial
sys em. In ecen yea s, many de eloping economies ha e implemen ed a ious o ms o
capi al adequacy egula ion policies o ensu e ha he banking sec o is s able and sound in
line wi h he equi emen s o he Basel Acco d by he Basel Commi ee. Despi e hese
massi e e o ms in he o m o capi al equi emen s, he banking sec o in SSA seems o be
s ill weak and expe iencing a high le el o ailu e due o high isk. This pu s doub on he
e ec i eness o he capi al adequacy equi emen (CAR) in educing bank isk- aking.
The e o e, in es iga ing he in luence o boa d cha ac e is ics on he CAR policy and he
bank’s isk- aking beha io is expec ed o ha e implica ions o bank execu i es and
egula o s on how o iden i y boa d cha ac e is ics ha can posi i ely in luence he
ela ionship be ween CAR and bank isk- aking.
The pape inds ha capi al adequacy egula ion is posi i ely ela ed o o e all bank and
liquidi y isks. None heless, capi al adequacy egula ion inc eases c edi isk in he sampled
banks. The pape u he epo s ha boa d cha ac e is ics indi idually and signi ican ly
mode a e he ela ionship be ween capi al adequacy egula ion and isk- aking.
The pape p oceeds as ollows: Sec ion 2 p esen s heo e ical aming and empi ical
e iew. Sec ion 3 cap u es he esea ch design. Sec ion 4 p esen s he esul s and discussion
whe eas Sec ion 5 cap u es he conclusion and implica ions o he s udy.
2. Theo e ical aming
Capi al adequacy heo y a gues ha banks should hold capi al bu e s o sa egua d banks’
ulne abili y o liquidi y isk agains panic wi hd awal (Zhongming e al., 2019). The main
objec i e o capi al egula ion in he banking sec o is o p e en manage s and owne s om
aking excessi e isks (San ome o, 1997). None heless, c i ics o capi al adequacy heo y
a gue ha CARs may inc ease a bank’s isk appe i e (Calem and Rob, 1999;Milne, 2002).
They posi his because i is cos ly o banks o hold highe capi al a ios. The e o e, banks
ough o incu mo e isk o compensa e o cos s associa ed wi h main aining highe capi al
a ios. Following his heo e ical p eposi ion, empi ical e idence on he ela ionship be ween
capi al adequacy and bank isk- aking appea s o be con adic o y and mixed.
Bank sha eholde s ha e a high endency o engage in highe isk beha io s because o
mo al haza d p oblems and con ex payo (Jensen and Meckling, 1976;John and Scholes,
1991). Due o he highe in o ma ion asymme y le el in he banking indus y, using deb
con ac s ex an e is no e ec i e in cu bing sha eholde s om aking mo e isks (Dewa ipon
and Ti ole, 1994). Also, isk-adjus ed capi al inc eases he p oblem o mo al haza d by
encou aging sha eholde s o ake mo e isky in es men s and ailing o con ol banks’
incen i es (Jensen and Meckling, 1976;Me on, 1977;John and Scholes, 1991).
Mo eo e , acco ding o agency heo y, he p incipal–agen ela ionship should use
in o ma ion in he o ganiza ion e icien ly o minimize in o ma ion asymme y and isk-
bea ing cos s (Eisenha d and Ca hleen, 1989). Agency heo y sugges s wo po en ial p oblems
(mo al haza d and ad e se selec ion) ha may a ise wi hin he manage –sha eholde
ela ionship o low-disclosu e banks. Agency heo y and co po a e go e nance a e used o
ecognize o egula e he ole o agen s in sa is ying hei pa o he con ac ual ela ionship
go e ning agency ela ionships. The basic iew held by agency heo is s o co po a e
go e nance is ha he boa d o di ec o s has a ole o ensu e ha hey comply wi h egula o y
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equi emen s, including CARs and isk- aking. Hence, his s udy examines he mode a ing ole
o boa d cha ac e is ics in he ela ionship be ween CARs and isk- aking.
2.1 Empi ical e iew o capi al egula ion and isk- aking o banks
When manage s’decisions and ac i i ies a e highly egula ed and supe ised by au ho i ies,
oo much isk- aking and i s ad e se e ec on banks a e educed (Demse z and Lehn,1985).
In he public in e es iew, banking egula ion and supe ision policies a e gea ed owa ds
educing bank isk- aking and ensu ing bank sus ainabili y (Pe i jean, 2013;Pakhchanyan,
2016;Basel I, 1998;Basel II, 2011; and Basel III, 2015;Rachdi and Bouheni, 2016). Rela ing o
banking egula ion, supe iso y policies and he le el o isk- aking in banks, he e a e
a ying indings. Agga wal and Jacques (2001) and Ma eja
s
ak e al., 2009 a ibu e he
a ia ion in indings o he coun y, ime pe iod and a iables s udied. Heid and K em (2003)
disco e a posi i e ela ionship be ween capi al egula ion and bank isk- aking in hei
s udy o he ele ance o capi al egula ion and bank beha io . Bank egula ions and
supe ision on banks’ isk- aking a e posi i e bu insigni ican associa ions be ween bank
egula ions and supe ision. Howe e , Sh ie es and Dahl (1992) epo a nega i e
ela ionship be ween bank egula ion and he isk- aking o banks, and Jacques and Nig o
(1997) epo a nega i e associa ion be ween bank egula ion and supe iso y policies and
bank isk- aking. Heid and K em (2003) ind ha capi al s ingency ma ginally impac s bank
isk. Thei indings indica e ha ac i i y es ic ions and deposi insu ance (DI) inc ease
bank isk. Howe e , he indings a e consis en wi h p e ious s udies by Deme guç-Kun and
De agiache (2002) and Ba h e al. (2004).
Con a y, some s udies es ablish ha capi al equi emen s inc ease banks’ isk- aking
beha io (Blum, 1999;Calem and Rob, 1999). Alam (2012) inds ha igh e es ic ions educe
isk- aking. Klomp and De Haan (2012) es ablish ha banking egula ion and supe ision
impac he isk o banks. Rachdi and Bouheni (2016) epo ha imp o emen in he
egula o y and supe iso y policies will dec ease he le el o isk- aking in comme cial banks
in Eu ope.
Consequen ly, he e iew o p io s udies has concen a ed in de eloped economies wi h
s ong supe iso y capabili ies. This SSA case may be di e en . Beck e al. (2015) a gue ha
banks in SSA a e cha ac e ized by weak supe iso y capabili ies and go e nance
amewo k. In ecogni ion o hese weaknesses, Beck e al. (2015) obse e ha
co esponding banks in de eloped coun ies equi ed banks ope a ing in SSA main ain
high egula o y s anda ds including CAR. Failu e o main ain hese egula o y s anda ds
may isk isola ion om global ade. Conside ing he ac SSA coun ies a e impo -d i en
economies, banks in SSA may no isk isola ion om he in e na ional ade. Acco dingly,
his pape conjec u es ha banks in SSA will comply wi h capi al adequacy egula ion and
his will posi i ely a ec he isk- aking o uni e sal banks. We, he e o e, hypo hesized ha
H1. Capi al adequacy egula ion policy posi i ely a ec s he isk- aking o uni e sal
banks in SSA.
2.2 The mode a ing ole o boa d cha ac e is ics on capi al adequacy equi emen s and isk-
aking
Poo co po a e go e nance s uc u es in banks do no ensu e p ope moni o ing and
managemen o isk, which leads o excessi e isk- aking in banks (Jensen, 1993). Acco ding o
Conyon e al.(2011), weak go e nance s uc u es ha e con ibu ed la gely o unnecessa y isk-
aking in banks du ing he inancial c unch. Abou-El-Sood (2017) suppo s his by es ablishing
ha weak co po a e go e nance s uc u es in banks lead o inadequa e isk moni o ing by he
boa d, which ul ima ely leads o unnecessa y isk- aking. Ki kpa ick (2009) es ablishes ha
Boa d
cha ac e is ics
e ec in
uni e sal banks
103
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he boa d’s disclosu es o o eseeable isk ac o s and sys ems o moni o ing and managing
isk we e se e ely lacking in many ailed banks. Bu O e o e al. (2019) a gue ha in o de o
maximize sha eholde s’wo h, boa ds o di ec o s and manage s o banks ake excessi e isk.
This asse ion by O e o e al.(2019)b ings abou a con lic o in e es be ween sha eholde s’
maximiza ion heo y and s akeholde s’ heo y ying o he s abili y o banks.
The size o he boa d o di ec o s in banks ma e s in e ms o isk- aking in he banks.
La ge boa ds b eed ine iciencies and hinde communica ion, coo dina ion and decision
capabili ies o add ess excessi e isk- aking (Jessen, 1983). Fu he o his, Jensen (1993)
emphasizes ha la ge boa ds and mo e egula o y es ic ions on ou side di ec o ship o
banks ou weigh he bene i s o hese go e nance mechanisms, which e en ually unde mine
pe o mance. As la ge boa ds may exhibi ine iciencies, i is a ea u e ha hinde s boa d
communica ion, coo dina ion and decision-making abili ies o mi iga e excessi e isks in he
o ganiza ion. Rachdi and Ben Ameu (2011) epo ha smalle boa ds lead o excessi e isk-
aking by comme cial banks in Tunisia, bu BIND (nonexecu i e di ec o ship) has no e ec
on he banks’ isk- aking when hey examine 11 comme cial banks in Tunisia om 1997 o
2006. Loh and Sok-Gee (2017) examine lis ed comme cial banks in Malaysia be ween 2001
and 2012 and epo ha bigge boa ds lead o excessi e isk- aking by comme cial banks in
Malaysia. Kusi e al. (2018) examined 215 banks om 29 A ican coun ies o es ablish a
ela ionship be ween co po a e go e nance and bank isk- aking in A ica, using boa d size
as a measu e ha was nega i ely co ela ed wi h bank isk- aking in A ica. They conclude
ha la ge boa ds lead o excessi e isk- aking by banks in A ica. Meije (2017) s udying 127
comme cial banks selec ed om de eloped coun ies be ween 2002 and 2016 using o dina y
leas squa e (OLS) epo s ha bigge boa ds and gende di e si y lead o less isk- aking.
The independence o boa ds o di ec o s is nega i ely associa ed wi h bank isk- aking in
de eloped coun ies. Pala ia e al. (2015) s udy banks in Ame ica and epo ha banks wi h
emale boa d chai pe sons ake less isk and, howe e , ha e high sol ency a ios. Zhu e al.
(2018) a gue ha women, by hei na u e, a e isk-a e se and se ing on banking boa ds will
in luence isk decisions posi i ely.
No wi hs anding he seemingly con adic o y e idence on he ela ionship be ween boa d
size, independence and gende di e si y on isk- aking, he e is a consensus on he impac o
hese boa d cha ac e is ics in imp o ing boa d moni o ing e ec i eness in SSA (see
Agyemang and Appiah, 2017;Agyemang and Assabil, 2021). Acco dingly, his pape
con ends ha e ec i e con igu a ion o he boa d in e ms o boa d size, BIND and BGD will
in luence he ela ionship be ween capi al adequacy egula ion policy and bank isk- aking.
Consequen ly, he pape hypo hesized ha
H2a. Boa d size has a posi i e and signi ican mode a ing e ec on he ela ionship
be ween capi al egula ion policy and isk- aking o uni e sal banks.
H2b. Boa d independence has a posi i e and signi ican mode a ing e ec on he
ela ionship be ween capi al egula ion policy and isk- aking o uni e sal banks.
H2c. Boa d gende di e si y has a posi i e and signi ican mode a ing e ec on he
ela ionship be ween capi al egula ion policy and isk- aking o uni e sal banks.
3. Resea ch design
3.1 Da ase and sou ce
A da a se on banking capi al adequacy egula ion, inancial a ios and boa d cha ac e is ics
(boa d size, BIND and gende di e si y) was manually ex ac ed om annual epo s o he
banks o he s udy pe iod (2009–2019). The use o panel da a would a oid he p oblem o
mul icollinea i y, agg ega ion bias and endogenei y p oblems (Solomon e al., 2000;
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Bouheni, 2014). This s udy used unbalanced dynamic panel da a o egula ion and
supe ision, inancial a ios and boa d size eg ession analysis o measu e, es ablish and
analyze he e ec o egula ion and supe ision on bank pe o mance and isk and also he
mode a ing e ec o boa d size on he ela ionship be ween egula ion and supe ision and
pe o mance on one hand and isk on he o he hand o uni e sal banks om Ghana, Nige ia
and Kenya be ween 2009 and 2019.
The ocus o he s udy is all he uni e sal/comme cial banks in Ghana, Nige ia and Kenya.
In all, 70 uni e sal/comme cial banks ep esen ing 82% o he banks in selec ed coun ies
we e conside ed o he s udy. This consis s o 22 om Ghana, 16 om Nige ia and 32 om
Kenya. Appendix 1 shows he sampled uni e sal banks used o he s udy om each o he
h ee coun ies.
3.2 Measu emen o a iables
In his pape , ou a iable o in e es is isk- aking o comme cial/uni e sal banks. Consis en
wi h p io s udies, he isk- aking o comme cial and uni e sal banks is p oxied by Z-sco e,
liquidi y isk and c edi isk. Z-sco e is he a io o ROA plus EAR o he s anda d de ia ion o
ROA, whe e ROA is he e u n on asse s and EAR is he p opo ion o equi y o asse s (Highe
Z-sco es indica e lowe chance o de aul and hence be e pe o mance wi h ega d o isk
managemen ). Z-sco e used is he banking insol ency isk measu e de eloped by Boyd
e al., 1993.
log ZSCORE ¼logROA þEAR
δROA
Liquidi y Risk is measu ed using Loan- o-Deposi Ra io (LDR) which is he compa ison o he
o al loans o he bank o he o al deposi o he banks. Basically, he a io is exp essed as a
pe cen age. Highe LDR a io is no heal hy o he banks because a sligh inc ease in he
demand o deposi s by he deposi o s may lead o liquidi y p oblems.
LDR ¼g oss loans
o al deposi
C edi Risk is measu ed using loan loss p o ision o g oss loans which is he compa ison o
loan loss p o ision o loan impai men cha ge o he g oss loans g an ed a he end o he
yea . Highe a io su aces when he nonpe o ming loans a e on he inc ease. Highe a io
depic s high c edi isk and lowe a io indica es lowe c edi isk (Epu e and La uen e, 2015
and Mu ii hi, 2016).
loan loss p o ision a io ¼loan loss p o ision=g oss loans and ad ance
The independen a iable o he s udy is he capi al adequacy egula ion. CAR is measu ed
using egula o y capi al equi emen a io which is
CAR ¼Tie 1ðco e capi alÞ=RWA
The mode a ing a iables in his pape a e co po a e go e nance cha ac e is ics p oxied
by boa d size, BIND and BGD. Boa d size is measu ed as he numbe o indi iduals se ing
on he banking boa ds a he end o each inancial yea whe eas BIND is measu ed as
p opo ion o nonexecu i e di ec o s on boa d. BGD is measu ed as p opo ion o emales
on boa d.
We also include in ou model con ol a iables. These include bank size o bank-speci ic
a iables and coun ies’mac oeconomics indica o s which include in la ion a e, p ime
in e es a e and GDP g ow h a e. Bank size is measu ed as he na u al log o o al asse s o
Boa d
cha ac e is ics
e ec in
uni e sal banks
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he banks. Size migh be an impo an de e minan o bank pe o mance i he e a e
inc easing e u ns o scale in banking. The o al asse s o each bank o each yea we e
epo ed in he local cu ency in he inancial epo o he sampled banks. The e o e, we used
he a e age exchange a e a he end o each yea o con e he alue o o al asse o USD.
This app oach is consis en wi h p io empi ical li e a u e (see Die ich and Wanzen ied
(2011),Louzis e al. (2012) and Tan (2015)). The ull de ails o he p oxies used o measu e he
a iables conside ed in his pape a e cap u ed in Appendix 2.
3.3 Model speci ica ion
The basic model o be es ima ed akes he o m o
RISK TAKING ¼ ðCAR;BSIZE;INTRA;INFLA;GDPÞg (1)
Inco po a ing e o e m and a iable coe icien s, he model o he dynamic gene alized
me hod o momen s (GMM) sho - e m un measu e o isk- aking becomes
Rji ¼β0þβ1Rji −1þβ2CARji þβ3Bsizeji þβ4INTRAji þβ5IFLAji þβ6GDPji þy þe
(2)
whe e R
ji
is he measu e o banks’ isk- aking (using banking insol ency’sZ-sco e, c edi and
liquidi y isks) and R
ji -1
is he lagged bank isk which emphasizes ha he cu en yea ’s
isk- aking depends on he p e ious yea ’s iskle el.CAR –capi al adequacy equi emen
policy, Bsize –bank size, INTRA
ji
–in e ac ion e m (boa d size, independence and gende
di e si y), IFLA
ji
–in la ion a e, GDP –g ow h a e, y –yea dummy and e–e o e m.
Whe e j51–3, i 51–70 and 51–10.
Conside ing a iables and da ase o he s udy and empi ical analysis o be done, o he
commonly used es ima ion echniques a e inapp op ia e o his s udy. SYS-GMM is
ega ded as he ines es ima ion me hod wi h e e ence o econome ic se ing o he s udy
(De Vi a and Luo, 2018).
The GMM is a s a is ical me hod ha combines obse ed economic da a wi h he
in o ma ion on popula ion momen condi ions o p oduce es ima es o he unknown
pa ame e s o his economic model (Mu ii hii, 2016). Me hod wo-s ep GMM-in-Sys em
es ima o is used o his s udy and as sugges ed by Roodman (2009) and Bouheni (2014), his
s udy conside s a numbe o banks –70 –and a ime pe iod o 11 yea s –2009–2019.
In s udies like his, ea u ing such da ase , GMM es ima o wo ks well.
This s udy conside s ime lag in iew o ha dynamic eg ession o es hypo heses. As
sugges ed by Woold idge (2010), he s udy adop s dynamic panel models because ime lags
a e conside ed in he s udy and also he e is likelihood o p esence o absence o
au oco ela ion dynamics, in such si ua ions, dynamic panel analysis is use ul. The
app op ia e es ima ing echnique o dynamic panel analysis as sugges ed by Ve beek (2004)
is GMM es ima o . As pos ula ed by De Vi a (2018) and Kyaw (2017), he wo-s ep SYS-GMM
es ima o accoun s o he undamen al dynamics o he da a gene a ion p ocedu e while also
dealing wi h coun y-speci ic e ec s, measu emen e o and endogenei y p oblems as
compa ed o o he es ima ing echniques such as ixed e ec , andom e ec OLS and e en
one-s ep SYS-GMM. The GMM es ima o also add esses he p oblem o e e sal causali y
and simul anei y bias (Hansen, 1982;Liang e al., 2013;Tan, 2015;Hakimi e al., 2018).
Two-s ep SYS-GMM es ima ion echnique is widely used in co po a e go e nance and
inance s udies since i deals wi h pe cei ed endogenei y by using lagged a iables (De Vi a
and Luo, 2018). Among such s udies a e Win oki e al. (2012),De Mendonça e al. (2012),
Adams and Meh an (2012),Liang e al. (2013),Kyaw (2017),Bouheni (2014),Haque (2017) and
De Vi a and Luo (2018).
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4. Resul s and discussion
4.1 Desc ip i e s a is ics
Table 1 shows he desc ip i e s a is ics o he s udy a iables, ha is, obse a ions, mean,
s anda d de ia ion, minimum and maximum alues.
F om Table 1, he minimum asse s s ood a as low as $57,146 and he maximum a
$9,085,662, wi h a mean o $670,682.20. F om Table 1, majo i y o he banks ha e an LDR a
he h eshold o 70.9%, bu ideally, 50–60% should be expec ed. Highe LDR migh ansla e
in o g ow h o banks’a e age p o i s du ing he pe iod unde s udy since an inc ease in
liquidi y o banks educes c edi s, hence p o i s (Sahyouni and Wang, 2019). The s anda d
de ia ion o 59.1% lying below he mean is an indica ion ha he dispe sion is no all ha
much. Bu he maximum exceeding 100%, ha is 1102.1%, is ala ming. The loan loss
p o ision on a e age s ood a 3.6%, which indica es ha c edi isk is well managed, hough
i is dispe sedly dis ibu ed among he banks, ha ing a s anda d de ia ion o 19.5%, which is
g ea e han he mean alue. Again, some banks exhibi a c edi isk o 488.9%, which is
dange ous and can endange he liquidi y posi ion o he banks. No wi hs anding, some
banks making sa ings om loan loss p o isions is an indica ion o p ope managemen o
c edi isk du ing he s udy pe iod.
F om Table 1, he banks a e adequa ely capi alized conside ing he mean o 24%
compa ed o he 8% h eshold ecommended by he Basel II acco d and implemen ed by mos
egula o s. The s anda d de ia ion o 27% indica es a high le el o dispe sion. Also, he
numbe o membe s on he banking boa ds is oo wide; hus, a di e ence o 15 be ween he
minimum and maximum wi h an a e age o 10 membe s. The ex eme is he p esence o oo-
big- o- ail banks, which ha e o he in es men oppo uni ies and o which mo e expe ise is
needed o manage a ious business en u es. F om s udy obse a ions, mos banks a e
ocused on adi ional banking ac i i ies and, he e o e, do no ha e la ge boa ds. The
minimum o i e is consis en wi h he indings o A uahene (2016) and Kyeneboah-Coleman
and Bie pe (2006). Ou side di ec o ship is s ongly ad oca ed in he sub egion, hus an
a e age o se en independen di ec o s o he a e age boa d size o en. On he con a y, he
p opo ion o women on he banking boa ds is e y low, compa ing an a e age o wo o ha
o an a e age boa d size o en. I can be obse ed ha he BGD was s icky no wi hs anding
he ac ha he e we e some a ia ions wi h some banks om one yea o ano he . This is
consis en wi h he obse a ions made by N im (2016) ha boa d a ibu es such as BGD u n
ou o be s icky. This implies ha do no easily change unless he e is a change in policy
Va iables Obse a ions Mean S anda d de ia ion Minimum Maximum
ZSCORE 650 1.225 0.358 0.308 3.783
LDR 665 0.709 0.591 0 11.022
CDR 661 0.037 0.195 0.045 4.889
CAR 598 0.216 0.270 1.98 2.618
BODSIZE 589 10.13 3.165 5 20
NED 589 6.996 2.287 4 13
FEMALES 589 1.740 1.257 0 6
ASSETS($) 770 670682.20 10,556,908 57,146 9,085,662
PRIME RATE 770 0.127 0.052 0.014 0.26
INFLATION 770 0.096 0.043 0.032 0.189
GDP 770 0.058 0.0308 0.016 0.174
No e(s): ROAs –Re u n on Asse s; ROE –Re u n on Equi y; NIM –Ne In e es Ma gin; LDR –Liquidi y Risk;
CDR –C edi Risk; CAR –Capi al Adequacy Requi emen ; BODSIZE –Boa d Size; BIND –Boa d
Independence; BGD –Boa d Gende Di e si y; GDP –G oss Domes ic P oduc G ow h
Table 1.
Desc ip i e s a is ics o
he s udy a iables
Boa d
cha ac e is ics
e ec in
uni e sal banks
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Tunisian banks”,In e na ional Jou nal o Business and Managemen , Vol. 6 No. 6, pp. 88-97.
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Co esponding au ho
Ebeneze Agyemang Badu can be con ac ed a : [email p o ec ed]
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Appendix 1
Name o he bank ID Coun y
Access Bank 1 Ghana
Ag icul u al De elopmen Bank 2 Ghana
Bank o A ica 3 Ghana
Ba clays Bank 4 Ghana
Sahel Saha a Bank 5 Ghana
CalBank 6 Ghana
Ecobank 7 Ghana
Fi s A lan ic Bank 8 Ghana
Fideli y Bank 9 Ghana
FBN Bank 10 Ghana
Fi s Na ional Bank 11 Ghana
GCB Bank 12 Ghana
Gua an y T us Bank 13 Ghana
HFC (Republic) Bank 14 Ghana
Uni e sal Me chan Bank 15 Ghana
Na ional In es men Bank 16 Ghana
P uden ial Bank 17 Ghana
S anda d Cha e ed Bank 18 Ghana
Socie e Gene ale Bank 19 Ghana
S anbic Bank 20 Ghana
Uni ed Bank o A ica 21 Ghana
Zeni h Bank 22 Ghana
Access Bank 23 Nige ia
Ci i Bank 24 Nige ia
Diamond Bank 25 Nige ia
Ecobank 26 Nige ia
Fideli y Bank 27 Nige ia
Fi s Bank 28 Nige ia
Fi s Ci y Bank 29 Nige ia
Gua an y T us Bank 30 Nige ia
Skype/Pola is Bank 31 Nige ia
S anbic IBTC Bank 32 Nige ia
S e ling Bank 33 Nige ia
Uni ed Bank o A ica 34 Nige ia
Union Bank o Nige ia 35 Nige ia
Uni y Bank Plc 36 Nige ia
Wema Bank 37 Nige ia
Zeni h Bank 38 Nige ia
KCB Bank Kenya L d 39 Kenya
Equi y Bank Kenya L d 40 Kenya
The Co-ope a i e Bank 41 Kenya
Ba clays Bank o Kenya 42 Kenya
S anda d Cha e ed Bank Kenya L d 43 Kenya
Diamond T us Bank 44 Kenya
S anbic Bank Kenya L d 45 Kenya
Comme cial Bank o A ica 46 Kenya
I&M Bank L d 47 Kenya
NIC Bank Plc 48 Kenya
Bank o Ba oda 49 Kenya
P ime Bank L d 50 Kenya
Na ional Bank o Kenya L d 51 Kenya
Ci ibank N.A. Kenya 52 Kenya
(con inued)
Table A1.
Uni e sal banks used
o he s udy
Boa d
cha ac e is ics
e ec in
uni e sal banks
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Name o he bank ID Coun y
Bank o India 53 Kenya
Family Bank L d 54 Kenya
Ecobank Kenya L d 55 Kenya
Bank o A ica (K) L d 56 Kenya
Vic o ia Comme cial Bank 57 Kenya
Gul A ican Bank L d 58 Kenya
Gua an y T us Bank L d 59 Kenya
A ican Banking Co po a ion L d 60 Kenya
Sidian Bank L d 61 Kenya
C edi Bank L d 62 Kenya
Gua dian Bank Limi ed 63 Kenya
Fi s Communi y Bank L d 64 Kenya
UBA Kenya Bank L d 65 Kenya
M-O ien al Comme cial Bank L d 66 Kenya
T ansna ional Bank Limi ed 67 Kenya
Consolida ed Bank Limi ed 68 Kenya
Pa amoun Bank L d 69 Kenya
Spi e Bank Limi ed 70 Kenya
Table A1.
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Appendix 2
Resea ch
a iables
P oxies
Expec ed signs
Measu emen Da a Sou ce
Dependen
a iables
ROA/
ROE/
NIM Liquidi y/c edi
Risk ZSCORE log ZSCORE ¼logROA þEAR
δROABank
Scope/Audi ed
Annual Repo
2009–2019
Liquidi y isk LQR 5g oss loans/deposi
C edi isk CDR 5loan loss
p o ision/g oss loans
Independen a iables
Regula ion Capi al
Adequacy
Requi emen
(CAR) o
S ingency
þ–CAR 5TIER 1/RWA Bank Scope/
Audi ed
Annual Repo
2009–2019
Bank-speci ic
a iables
Banks Size
(Log o o al
asse s)
þþ Log o banks’ o al asse s
Co po a e
go e nance
cha ac e is ics
Boa d Size
(BSIZE),
Boa d
independence
(BIND) and
Boa d Gende
Di e si y
(BGD)
þ–BSIZE 5numbe o indi iduals
on boa d a he end o he
inancial yea ;
BIND 5p opo ion o
nonexecu i e di ec o s on boa d;
BGD 5p opo ion o emales on
boa d
Mac oeconomic
a iables –
coun ywide
da a
In la ion,
GDP, p ime
in e es a e
þ/þ/Cen al Banks,
Wo ld Bank,
IMF, IFSM and
WDI
Sou ce(s): Resea che ’s ield su ey
Table A2.
Measu emen o
a iables, expec ed
signs and da a sou ce
Boa d
cha ac e is ics
e ec in
uni e sal banks
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Appendix 3
Va iables ROA ROE NIM ZSCORE LDR CDR CAR BODSIZE BIND BGD CAR*BODS CAR*BIND CAR*BGD Asse s ITRA In la ion GDP
ROA 1.000
ROE 0.774 1.000
NIM 0.058 0.022 1.000
ZSCORE 0.360 0.264 0.008 1.000
LDR 0.129 0.119 0.011 0.036 1.000
CDR 0.241 0.177 0.002 0.159 0.036 1.000
CAR 0.175 0.044 0.012 0.105 0.062 0.010 1.000
BODSIZE 0.012 0.020 0.020 0.080 0.026 0.053 0.212 1.000
BIND 0.003 0.050 0.085 0.110 0.015 0.001 0.189 0.733 1.000
BGD 0.072 0.138 0.022 0.008 0.010 0.021 0.256 0.185 0.043 1.000
CAR*BODS 0.296 0.151 0.017 0.003 0.139 0.037 0.779 0.167 0.205 0.176 1.000
CAR*BIND 0.267 0.124 0.029 0.077 0.116 0.065 0.629 0.173 0.303 0.088 0.906 1.000
CAR*BGD 0.099 0.069 0.023 0.0249 0.022 0.242 0.172 0.271 0.150 0.132 0.104 0.141 1.000
ASSETS 0.305 0.272 0.032 0.285 0.003 0.077 0.321 0.634 0.501 0.372 0.343 0.332 0.028 1.000
PRIME RATE 0.061 0.082 0.016 0.212 0.153 0.226 0.160 0.175 0.180 0.007 0.069 0.130 0.332 0.182 1.000
INFLATION 0.035 0.070 0.038 0.167 0.003 0.245 0.058 0.175 0.023 0.007 0.016 0.080 0.376 0.021 0.402 1.000
GDP 0.029 0.043 0.038 0.034 0.137 0.084 0.023 0.206 0.099 0.126 0.090 0.119 0.085 0.238 0.198 0.380 1.000
No e(s): ROA –Re u n on Asse s; ROE –Re u n on Equi y; NIM –Ne In e es Ma gin; LDR –Liquidi y Risk; CDR –C edi Risk; CAR –Capi al Adequacy
Regula ion; BODSIZE –Boa d Size; BIND –Boa d Independence; BGD –Boa d Gende Di e si y; CAR*BODS –In e ac ion o Capi al Adequacy Regula ion and
Boa d Size; CAR*BIND –In e ac ion o Capi al Adequacy Regula ion and Boa d Independence; CAR*BGD –In e ac ion o Capi al Adequacy Regula ion and Boa d
Gende Di e si y; GDP –G oss Domes ic P oduc G ow h; ITRA –In e es a e
Table A3.
Pe son co ela ion
ma ix o he s udy
a iables
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