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CORPORATE GOVERNANCE INDICATORS AND FIRM VALUE: THE CASE OF ZIMBABWEAN COMMERCIAL BANKS

Volume: 112  ,  Issue: 1 , November    Published Date: 12 November 2022
Publisher Name: IJRP
Views: 61  ,  Download: 37 , Pages: 119 - 143    
DOI: 10.47119/IJRP10011211120224065

Authors

# Author Name
1 COLLADE NGONI MURUNGU
2 KUPFUWA MORELATE
3 GUMBO LILIAN
4 GIVEMORE MOYO
5 SIMISO SIZIBA

Abstract

The financial crisis that occurred between the period 2008-2009 left many banks collapsed and thus this raised more questions than answers about relation with corporate governance and firms value. In Zimbabwe more than 20 banks were closed during the period of 1980 to 2017. This dissertation investigated the relation between firm-level corporate governance and firm value based on a large and previously use questions measuring corporate governance from Laporta which comprise 24 questions. However, the researcher used on a set of 17 individual questions as they suit the Zimbabwean commercial banks to come up with three corporate governance indices. The researcher employed explanatory research methodology.  For all three indices the researcher found a strong and positive relation between firm-level corporate governance and firm valuation. In addition, disclosure of information was found to be improving the TobinQ by 0.7% and a strong causation was found on the board composition and performance as indicated by an increase of 26% on Tobins Q of banks. However, ethics and conflict of interest was found to be reducing firms value by 0.2%. Regardless of whether these attributes are considered individually or aggregated into indices, and even when “standard” corporate governance attributes are controlled for, they exhibit a positive and significant effect on firm value. The findings are robust to alternative calculation procedures for the corporate governance indices and to alternative estimation techniques. The study found out that firm value was driven by information disclosure and board composition and thus the researcher recommends that banks should continue improving their information disclosure and keep abiding by IFRS and IAS in doing so. The board composition was found to be contributing more to firm valuation, thus the researcher recommends that the shareholders should chose the appropriate board members and any member who will be underperforming must be thereof be removed from the board. The ethics and conflict of interest was found to be reducing the firm valuation implying that banks should revisit their ethical standards and what constitute conflict of interest. By so doing the banks can improve their firm valuation.       The financial crisis that occurred between the period 2008-2009 left many banks collapsed and thus this raised more questions than answers about relation with corporate governance and firms value. In Zimbabwe more than 20 banks were closed during the period of 1980 to 2017. This dissertation investigated the relation between firm-level corporate governance and firm value based on a large and previously use questions measuring corporate governance from Laporta which comprise 24 questions. However, the researcher used on a set of 17 individual questions as they suit the Zimbabwean commercial banks to come up with three corporate governance indices. The researcher employed explanatory research methodology.  For all three indices the researcher found a strong and positive relation between firm-level corporate governance and firm valuation. In addition, disclosure of information was found to be improving the TobinQ by 0.7% and a strong causation was found on the board composition and performance as indicated by an increase of 26% on Tobins Q of banks. However, ethics and conflict of interest was found to be reducing firms value by 0.2%. Regardless of whether these attributes are considered individually or aggregated into indices, and even when “standard” corporate governance attributes are controlled for, they exhibit a positive and significant effect on firm value. The findings are robust to alternative calculation procedures for the corporate governance indices and to alternative estimation techniques. The study found out that firm value was driven by information disclosure and board composition and thus the researcher recommends that banks should continue improving their information disclosure and keep abiding by IFRS and IAS in doing so. The board composition was found to be contributing more to firm valuation, thus the researcher recommends that the shareholders should chose the appropriate board members and any member who will be underperforming must be thereof be removed from the board. The ethics and conflict of interest was found to be reducing the firm valuation implying that banks should revisit their ethical standards and what constitute conflict of interest. By so doing the banks can improve their firm valuation.

Keywords

  • Firm Size
  • corporate governance