Internal control mechanisms and financial performance of Ghanaian banks: the moderating role of corporate governance

Abstract

Purpose

This study aims to evaluate the moderating impact of corporate governance on the relationship between internal control mechanisms and financial performance.

Design/methodology/approach

The study employs a structured questionnaire to collect data from 250 top managers of rural banks in the capital of Ghana. Cronbach alpha value and Fornell-Larcker tests were performed to assess the reliability and validity of the data used. The study adopted a partial least square structural equation model (PLS-SEM).

Findings

The results show that internal control and corporate governance both have a direct positive and significant impact on financial performance. Furthermore, the interaction of internal control and corporate governance also has a positive and significant impact on financial performance, thus confirming the moderating role of corporate governance in the relationship between internal control mechanisms and financial performance.

Practical implications

This implies that organizations need to strengthen their corporate governance procedures to increase the efficiency of their internal control systems, which would ultimately lead to an improvement in their financial performance.

Originality/value

The present study innovates by assessing the moderating role of corporate governance in the nexus between internal control mechanisms and financial performance. This moderating effect assessment implies that corporate governance may not only affect the technical implementation of the internal control structures but will subsequently make an impact on the overall performance of the organization.

Citation

Oppong, C., Atchulo, A.S., Dargaud Fofack, A. and Afonope, D.E. (2024), "Internal control mechanisms and financial performance of Ghanaian banks: the moderating role of corporate governance", African Journal of Economic and Management Studies, Vol. 15 No. 1, pp. 88-103. https://doi.org/10.1108/AJEMS-03-2023-0101