THE EFFECTS OF BOARD DIVERSITY AND INTELLECTUAL CAPITAL ON RISK AND RETURN OF BANKS IN GHANA

ABSTRACT

This study seeks to examine the nexus between board diversity and intellectual capital(IC) on risk and return of banks in Ghana. Board diversity is proxy by the nationality of the board of directors of banks in Ghana, Intellectual capital by Value Added Intellectual Coefficient (VAIC) and risk and return by Z-score and return of assets (ROA) respectively.

Data is collected from the annual report of twenty-nine (29) universal banks in Ghana between the years 2000 to 2015. Panel regression was used to analyse the data.

The nexus between the components of IC and performance show that human capital efficiency (HCE) and structural capital efficiency(SCE) did not reduce insolvency risk but significantly improve return on assets of banks in Ghana while Capital employed efficiency(CEE) significantly reduces insolvency risk and significantly improves return on assets of banks in Ghana. Board national diversity (BD) significantly improves return on assets (ROA) but did not decrease insolvency risk of banks in Ghana. The study further states that the interaction of HCE, SCE and board national diversity significantly affect insolvency risk while the interaction of HCE, SCE CEE and board national diversity significantly affect ROA.

The implications of the study are that, firstly, CE drives the risk performance of banks in Ghana core business compared to HC and SC and secondly, generally, demographic diversity contributes positively towards organisational performance. Thirdly, when banks concentrate on managing HC well, it has the ability of increasing both SCE, CEE and position banks to be competitive and profitable and finally, the interaction of board national diversity and HCE, SCE and CEE influence the level of HCE, SCE and CEE and banks ROA in Ghana.