Banks play a primary role in the intermediation of savings and investments. As a result, the stability and development of the financial sector is of paramount importance to most countries. In developed countries, the global financial crisis which led to the shocking collapse of Lehman Brothers and distress in other global financial giants such as AIG, Merrill Lynch, Royal Bank of Scotland (RBS) and Northern Rock have raised concerns about corporate governance in the financial sector and more specifically, the importance of a stable banking sector worldwide. In developing countries, financial systems are heavily reliant on banking firms since they are the largest intermediaries. The institutional environment which includes substantial ownership by insider owners, poor legal and regulatory systems, corruption and the existence of distributional cartels underscore the need for effective regulation and sound corporate governance aimed at curbing excessive risk taking by owners. The effects of different ownership structures on banks have received little attention particularly in developing countries. Literature suggests that whether the ownership rights of a bank are held by just a few shareholders or by many and whether these shareholders are insiders or outsiders has differing effects on corporate governance. This study analyses the effects of ownership structure on corporate governance in Zimbabwean banks. The Zimbabwean banking sector has experienced major changes since the liberalisation of the financial markets in 1991. The sector expanded due to the entry of a significant number of private indigenous banks in a market previously dominated by foreign banks. Following this expansion, the sector suffered a near-systemic crisis in 2003 which resulted in the collapse of 13 of these newly registered banks and the arrest of several owner managers for abusing depositor’s funds. After the financial sector crisis, the central bank implemented new corporate governance regulations in 2004 which introduced a separation between ownership and management. The objective of the regulation was to address the problems relating to insider ownership concentration address corporate governance weaknesses in banks. The findings from this study indicate ownership concentration in all the banks across ownership types, and insider ownership concentration in private indigenous banks before and after the 2004 regulations. The empirical evidence also find that banks with insider ownership concentration suffered corporate governance weaknesses which resulted in problems such as related party transactions, frauds, tunnelling and abuse of depositor’s funds compared to those with outside ownership concentration. In this regard, the study finds that in developing countries, insider ownership concentration may result in corporate governance weaknesses whilst outsider ownership concentration can result in increased monitoring. The study also finds evidence of a weak legal and regulatory framework, poor enforcement and regulatory forbearance as some of the institutional arrangements which affected ownership structure and corporate governance in banks. The analysis in this study also indicate that the regulatory changes introduced by the central bank in 2004 have not been ineffective in tackling the corporate which resulted from insider ownership concentration. As a result, the study questions the a wholesome adoption of Anglo-Saxon type provisions relating to separation between ownership and management without an empirical analysis of their appropriateness to developing countries in developing countries.
| Identifer | oai:union.ndltd.org:bl.uk/oai:ethos.bl.uk:634804 |
| Date | January 2011 |
| Creators | Mambondiani, Lance |
| Contributors | Zhang, Yin-Fang |
| Publisher | University of Manchester |
| Source Sets | Ethos UK |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
| Source | https://www.research.manchester.ac.uk/portal/en/theses/corporate-governance-of-banks-evidence-ftom-zimbabwes-banking-sector(8a924bd2-09e5-42b9-a9a4-70c9064d60f6).html |
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