Effect of corporate governance on cost of capital of listed manufacturing firms in ghana

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In the field of Finance, the study of corporate governance and cost of capital has piqued the interest of scholars and practitioners. For a decade, the stability of the financial sector in Ghana has been threatened due to weak corporate governance, non-performing loans, political interference. To save the sector from suffering losses which can trigger into economic crisis, strong corporate governance is mainly required. The main aim of this study was to analyse the effect of corporate governance on manufacturing firms’ cost of capital. The study utilised quoted manufacturing firms on the Ghana Stock Exchange. All the 8 listed manufacturing firms are captured and observed from between the period of 2010 to 2021 making a 96-firm year observation. The study utilised the quantitative approach and explanatory research design. Data for the study were obtained from the annual financial statements of the selected firms under study. In order to achieve the objective of the study, the Hausman test was employed to determine the appropriate model for this study and found that the Fixed-Effect model was appropriate for this study. Augmented Dickey-Fuller test and Breusch-Godfrey test were performed to test for data stationarity and autocorrelation respectively. On the other hand, the researcher employed Breuch-Pegan test to test for the presence of heteroscedasticity. Based on the analysis, this study found that the board size has a significant negative effect on cost of capital of manufacturing firms. The study results also revealed a significant negative effect of board independence on manufacturing firms’ cost of capital. In addition, the study found a positive but insignificant effect of CEO duality on manufacturing firm’s cost of capital. Based on this, the study recommends to management of manufacturing firms to consider the cheapest and cost-effective source of capital like their retained earnings whenever they are looking for capital to expand their operations. External source of securing or raising capital for expansion should be the last source management should consider. This study concludes that corporate governance has a significant impact on manufacturing firms’ cost of capital.
A thesis submitted to the department of accounting and finance, school of business, kwame nkrumah university of science and technology, in partial fulfillment of the requirements for the award of the degree of master of business administration (finance option)