How do Corporate Governance Structures Affect the Funding Strategies of Banks in Africa?

This paper investigates how corporate governance at the bank level affects the funding strategy of banks in Africa. We analyze the empirical relations using a robust random effects estimator and a two-step System GMM estimator over an 8 year period for about 245 banks across the African continent. Our results generally indicate that well-governed banks use more of non-deposit funding compared to deposit funding. We interpret our results to mean that only well run banks can access funding from the non-deposit market and at an affordable cost. In the non-deposit markets, lenders are more sophisticated and therefore will examine the operations of a bank before making a lending decision. The results are consistent with both the agency and stewardship theories. Bad boards will prefer to use deposit funding, whereas good boards will prefer to use more non-deposit funding.