Corporate Governance and its Effect on Adoption of Financial Innovation: The Case of Private Commercial Banks in Ethiopia
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Date
2019-11
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Publisher
A.A.U.
Abstract
Nowadays business competence is influenced by a turbulent context, characterized by constant and unpredicted changes, where the introduction of new practices in to the market, of all kinds, organizational, commercial, financial, institutional, or technological, are becoming crucial tools to improve companies’ competitiveness and survival. Thus innovation has become a crucial element for the creation and improvement of competitive advantage in the long term. Therefore, the purpose of this study was to empirically investigate the effects of some of the internal corporate governance mechanisms on the adoption of financial innovations by private commercial banks in Ethiopia. Accordingly secondary data obtained from annual reports of companies and primary data obtained through questionnaire were analyzed for the period 2013-2018 for the population of all private commercial banks in Ethiopia. The study adopted a quantitative and explanatory research approach and design respectively. Among the internal corporate governance mechanisms, the impact of board characteristics (specifically board size, board gender diversity, Existence of Business/ Technology Development committee, industry related qualification of directors and board meeting frequency), and share ownership dispersion are addressed in the Ethiopian context using two theories of corporate governance, which are agency theory and stewardship theory. Adoption of Financial innovation is measured using innovation investment/R&D spent. The study used panel data and random effect regression model to analyze the relationship between corporate governance mechanisms and firm innovation using a data set of 16 private commercial banks in Ethiopia. The results show that board size, existence of business/ technology development committee, board meeting frequency, industry related qualification of directors, profitability and firm size have a significant positive effect on adoption of financial innovation. However, share ownership dispersion is identified to have a negative and significant impact on firm innovation. Board gender diversity and leverage have no effect on firm innovation. Accordingly, based on the finding of the study banks and other financial institutions recommended to increase their board size, and to incorporate business/technology development committee in their committee room, to elect board members having industry related qualification, balance the costs and benefits of board meeting frequency and to have concentrated share ownership.
Description
A Thesis Submitted to Department of Accounting and Finance Presented In Partial Fulfillment of the Requirements for the Degree of Master of Science in Accounting and Finance
Keywords
Corporate governance, Firm innovation, Private commercial banks