Determinants of internal governance quality: Evidence from corporations in Ethiopia

Abstract

The study analysed the factors that affect the internal governance quality of corporations in Ethiopia. It performed an ordered logistic regression analysis on a randomly selected sample of 76 corporations to analyse the effect of the ownership structure, form of ownership (private or government), leverage, corporate size, and sales growth on the internal governance quality score (IGQS). The governance quality score was measured using 20 indices categorized into four perspectives: disclosure, board characteristics, ethics, and shareholder rights. In this study, a significant positive effect of the corporate size and sales growth on the IGQS was found. In addition, government-owned corporations were found to perform better than privately owned corporations. It is recommended that appropriate authorities and officials should encourage the use of the corporate governance system in privately owned corporations and the convergence of internal governance quality of the two groups of corporations to the highest level.

Keywords:

• corporation
• ownership structure
• governance
• management
• development policy

PUBLIC INTEREST STATEMENT

Due to various phenomena, such as the business scandals and financial crises that have occurred in several parts of the business world, corporate governance is attracting the attention of researchers, policy makers, and even politicians. The study analysed the factors that affect the internal governance quality of corporations in Ethiopia. The governance quality score was measured using 20 indices categorized into four perspectives: disclosure, board characteristics, ethics, and shareholders’ rights. In this study, a significant positive effect of the corporate size and sales growth on the IGQS was found. In addition, government-owned corporations were found to perform better than privately owned corporations. It is recommended that appropriate authorities and officials should encourage the use of a corporate governance system among privately owned corporations and the convergence of the internal governance quality of the two groups of corporations to its highest possible level.

Additional information

Funding

This study has been funded by Mekelle University.

Notes on contributors

Yrgalem Gebreslassie Adane

Yrgalem Gebreslassie Adane is a lecturer and certified IFRS trainer at the Department of Accounting and Finance, College of Business and Economics, Mekelle University (MU). She has over 10 years of experience in teaching, research, and community service.

Tadesse Getacher Engida

Tadesse Getacher Engida is a Ph.D. candidate at the Business Economics Group, Department of Social Sciences, Wageningen University & Research. He has wide research interests in production economics, accounting, and financial economics.

Yitbarek Abrha Asfaw

Yitbarek Abrha Asfaw is an assistant professor and certified IFRS trainer at the Department of Accounting and Finance, College of Business and Economics, Mekelle University (MU). He has over 11 years of experience in teaching, research, and community service.

Hossein Azadi

Hossein Azadi is a senior researcher at the Department of Geography, UGent, Belgium. He is also a scientific staff at Department of Engineering Management, UAntwerp, Belgium. As a senior researcher, he has focused on applying mixed-method approach on socio-economic impact assessments of agri-rural development projects.

Steven Van Passel

Steven van Passel is currently full professor of Environmental Economics at the University of Antwerp and Hasselt University. As an ecological and environmental economist, he is interested in conceptual and methodological aspects of assessing sustainability and in clean technologies. Within this context, he has different peer reviewed journal publications and he is responsible for several research projects.