Corporate Governance and its Effect on Innovation in the Case of Private Commercial Banks in Ethiopia
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Date
2018-06
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Addis Ababa University
Abstract
Corporate governance carries strategic importance and should be addressed correctly by
decision makers. Corporate governance literature suggests that diverse boards are a part of
good corporate governance practice. However, it is not clear how good corporate governance
particularly diverse board characteristics might affect the corporate innovation and innovation
search strategies. Impact of corporate governance on innovation is still an area of study that has
not been adequately researched in Ethiopia. This study sought to establish the effect of corporate
governance on innovation of private banks in Ethiopia. The objective was accomplished by
assessing the effect of female directors in the board, size of the board, directors' educational
qualification and board independence on innovation. Due to availability of recent data, the study
had targeted population of nine private banks from all operated in Ethiopia namely Awash,
Abyssinia, Wegagen, United, NIB, Dashen, Oromiya-Cooperative, Birhan and Addis bank. The
study entirely used secondary data obtained from publicized annual reports and websites of the
individual banks. The researcher employed explanatory research design to explain the situation.
Result from regression analysis showed that independent variables (female directors in the
board, board size, educational qualification of directors’ and board independence) have
significant positive effect on innovation (log of the numbers of automatic teller machines and
point of sales terminal). The study thus concludes that the effect of corporate governance on
innovation depends on the variables. The study thus recommends an evaluation of the board
characteristics in private banks as it influences innovation.
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Keywords
Corporate Governance, Board Composition, Private Commercial Banks