Corporate governance, performance and liquidity risk: WAEMU’s banks focus

Over the past two decades, several corporates collapses and scandals lead to track down any deficiencies in the corporate governance mechanisms. Among these collapses and scandals, we list that of Enron (2001) and WorldCom (2002) in USA, Vivendi (2001) and Vinci (2006) in France, Parmalat (2003) in Italy, and most recently that of Ecobank Transnational Incorporated's boardroom « battle » (2013) in West African Context. On the basis of Jensen and Meckling (1976) agency theory, this paper examines the relation between corporate governance mechanisms and operating performance and liquidity risk within the specific environment of West African Economic and Monetary Union (WAEMU) banks. The implementation of well-known western corporate governance mechanisms in emerging markets, which mostly focus on unsophisticated financial services, is likely to act more as operating constraints than value-creation factors. Based on a sample drawn from 100 commercial banks over the period 2006–2010, we document the following three main findings: (1) dual structure and board size are negatively and significantly associated with banks' performance as proxied by ROA and ROE, (2) board size, board diversity and nature of ownership exhibit a negative and significant relation with banks' liquidity risk, (3) the presence of CEO in the directors' board appears to be the only corporate governance mechanism efficiently associated with banks' liquidity risk.