Measuring the impact of internal control systems on performance of Ghanaian banks: the mediating role of good corporate governance

Abstract

Purpose The demand for stronger shareholder returns and an increase in global market volatility has occasioned the development of internal control and governance mechanisms to boost a company's competitive edge. This study aims to measure the impact of internal control system (ICS) on bank performance using good corporate governance (GCG) as a mediating variable. Design/methodology/approach Data were collected from 23 licensed banks comprising 13 (internationally owned) and 10 (indigenously owned). The positivist paradigm was adopted. Construct reliability and validity were established using confirmatory factor analysis (CFA). Study hypotheses and proposed model were evaluated using structural equation modeling (SEM). Findings The results show that control environment and bank performance were positively associated. Control activities and bank performance were nonsignificantly associated. Risk assessment and bank performance were positively associated. GCG mediates the control environment and bank performance relationship. Similarly, GCG mediates the risk assessment and bank performance relationship However, GCG did not mediate the control activities and bank performance relationship. Research limitations/implications The finding's generalizability will be constrained due to the research's banking focus and cross-sectional data. Practical implications The findings of the study would be valuable to stakeholders, policymakers and bank management in developing astute and robust corporate governance architecture to ensure the efficacy, sustainability, competitiveness and resilience of the industry. Originality/value The study extends the literature on GCG, ICS and bank performance by evidencing empirically that GCG mediates the control environment, risk assessment and bank performance relationship.