Frank Antwi, Yusheng KONG
This study examines the impact of related party transactions on performance of banks in Ghana. Specifically, the study examines the effect of total related party transactions on firm performance as measured by Return on Assets (ROA).
The study uses a sample of banking institutions listed on Ghana Stock Exchange (GSE)over the period 2013 and 2017. Out of the 9 listed banks, 7, representing 77.78% were used for this study and data was gathered from their annual reports. The data pulled out was processed and analysed by carrying out Fixed Effects regression based on the outcome of Hausman test using Statistical software package, STATA version 15.
The study revealed that related party transactions has a significantly negative effect on firms’ performance. The research hypothesis is duly accepted and the study therefore provides evidence that the amount of related party transactions that a firm engages in can negatively affect its profitability. It is therefore prudent for practitioners to be careful of the kind of and the extent of related party transactions that they engage in. Regulators must also streamline dealings in relation to related party transactions and ensure that firms are closely monitored to reduce or guide related party transactions.
Board size, leverage and firm size were also employed as control variables in this study and it was revealed that board size is positively related to performance but has no influence on the performance of firms. However, firm’s leverage, measured by total debt over total assets has a negative and statistically significant effect on performance. Leverage negatively affects firm performance possibly due to high interest rates common in developing economies such as Ghana.
Lastly, the size of the banks measured by the natural log of total assets is negative and statistically related to ROA. The findings of this study supports the school of thought that, the larger the firm, the more the inefficiencies leading to diseconomies of scale. Listed banks in Ghana may not be taking advantage of their size to be more efficient and profitable and they have to look into their operational and related efficiency matters to become more profitable.
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