Effects of corporate governance on financial performance of small and medium scale enterprises in the Accra metropolis, Ghana

Abstract

Small and medium scale enterprises (SMEs) are well known to be efficient and prolific job creators and they make substantial contributions to developing economies. This study set out to examine the effects of corporate governance on financial performance of SMEs in the Accra Metropolis of Ghana. A quantitative research approach using simple random sampling procedure was employed to select the sample from each of the eleven sub-metropolises. A total of 500 owners/managers of SMEs were surveyed using a questionnaire. Multiple regression analysis was used to examine the relationships. The study also employed Baron and Kenny’s (1986) mediation approach to establish the mediating effects of access to capital and firm reputation on the nexus between corporate governance and financial performance. The results of the study revealed that, corporate governance variables, except intensity of board activity, had positive and significant effects on financial performance and these relationships were mediated by access to capital and/or firm’s reputation. It was recommended that SMEs’ owner-managers should improve their corporate governance practices to enhance the credibility and access to capital of these firms which would subsequently lead to better financial performance. They should also improve their stakeholder relations since this turn to boost the reputation of their firms and ease access to external sources of financing.