to the Study

to Organisation for Economic Co-operation and Development (OECD) (2003),
entrepreneurship accounts for between twenty and forty percent of total
productivity growth in eight selected OECD countries, therefore supporting the
idea that entrepreneurs represent one of the driving forces of economic growth
and development. Developing countries have generally come
to acknowledge the Small and Medium Enterprises (SMEs) sector as the key
driving force for growth due to the employment opportunities it creates (Hu,
2010). In emerging economies, it is estimated that SMEs employ about twenty-two
percent of the adult population (Daniels & Ngwira, 1993; Daniels &
Fisseha, 1992; Fisseha, 1991; Fisseha & McPherson, 1991). In Ghana, this
sector is viewed as a significant source of employment creation and national
revenue through taxation (Kayanula & Quartey, 2000; Keskin, 2006; Abor
& Quartey, 2010). Abor and Quartey (2010) posit that SMEs contribute about
seventy-five percent to Ghana’s GDP and also account for eighty-five percent of
employment in the manufacturing sector. But more importantly within the context
of development, a growth in this sector has a relationship with poverty
alleviation (Landes, 1998; Gebremariam, Gebremedhin & Jackson, 2004). Given
the important roles entrepreneurs and SMEs play in economic growth and
development, it would be imperative for governments, policy makers and
academics to undertake research to unearth conditions necessary for their
continuous survival and prosperity. Hence, one of the motivations for this
study is to assists SMEs appreciate the need to implement corporate governance
ideals in their business operations. Both resource-based theory and resource
dependency theory posit that resources, tangible or intangible, are needed for
the success of business organizations. Corporate governance has a role in SME
performance since it improves transparency and attracts capital at a cheaper
cost (Spanos, 2005; Yurtoglu & Claessens, 2012). The need to understand how
corporate governance affects the financial performance of SMEs, which is viewed
as one of the least researched areas in corporate governance studies (Yacuzzi,
2005; Yacuzzi, 2008; Clarke, 2006; Abor & Adjasi, 2007; Abor & Biekpe,
2007; Kohler and Deimel, 2012), is the main motivation for this study.

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Statement of the problem

The difficulty in accessing funds has been
identified as a major challenge confronting small and medium-sized business in
developing countries (Biekpe, 2004; Sacerdo, 2005). Among other causes of this
phenomenon, some empirical studies have identified managerial incompetence and
poor governance systems in the SME sector as some of the major drivers of this
problem in Ghana (Gockel & Akoena, 2002; Abor & Adjasi, 2007). Abor and
Adjasi (2007) found that the problems of credit constraint and managerial
incompetence in the Ghanaian SME sector could be overcome with good corporate
governance systems in place.

Nevertheless, in spite of the large number of
empirical research conducted during the past decades in larger firms (e.g.
Jensen & Meckling, 1976; Jensen, 1986; Shleifer & Vishny, 1997; Black,
2001; Klapper & Love, 2004; Bebchuk, Cohen & Ferrell, 2006; Duke &
Kankpang, 2011), there are still important areas of corporate governance still
unexplored, such as the application of corporate governance in emerging
economies (Yacuzzi, 2005) and the adaptation of indices suitable to  the nature and environment of SMEs in
developing economies (Cole, McWilliams & Sen, 2001). Although corporate
governance has been accepted as having a significant role at improving SMEs,
efforts so far at studying corporate governance in this sector  tend to take the tried and tested ‘variables’
developed in large businesses and compressed to fit SMEs based on agency theory
(e.g., Abor & Biekpe, 2007; Kyereboah-Coleman & Amidu, 2008; Al-Najjar,
2009; Hamad & Karoui, 2011; Gill, Mand & Mathur, 2012). Also, none of
these studies have comprehensively examined the mechanisms through which
corporate governance indicators influence the financial performance of SMEs.
These are important gaps in literature this study seeks to address.


of the Study

The main objective of
this study was to determine the effects of corporate governance on the
financial performance of small and medium scale enterprises in the Accra
metropolis of Ghana. The specific objectives were to:

1.  Establish
the relationship between board size and the financial performance of  SMEs;

2. Examine how the intensity of
board activity affects the financial performance of SMEs;

3. Examine the relationship between managerial
competence and the financial performance of SMEs;

4. Examine the relationship between strategic
competence and the financial performance of SMEs;

5. Establish the relationship between corporate
social responsibility practices and the financial performance of SMEs;

6. Examine the effect of SMEs’ stakeholder
engagement on their financial performance;

7. Establish the mediating effect of access to
capital on the relationship between corporate governance and SMEs’ financial

8. Establish the mediating effect of firm reputation
on the relationship between corporate governance and SMEs’ financial


of the Study

corporate governance can assist SMEs overcome their major challenge of
accessing funds from financial institutions (Abor & Adjasi, 2007). The
findings of this study would contribute immensely in focusing policy
formulation on the relevant measures of corporate governance within the SME
sector. This would improve the relevance of such policies in improving the
business success of these enterprises. The growth of the SMEs sector in Ghana
has significant impact on job creation and overall national development.

appreciation and adoption of corporate governance principles by owners/managers
of SMEs would provide some amount of protection for investors in this less
regulated sector. Investors, either in large or small businesses, do not only
expect that their investments would be protected but also that these
investments would generate adequate, if not satisfying, returns. Empirical
investigations on corporate governance practices in SMEs could assist investors
make prudent decisions in order to achieve these dual aspirations.

Furthermore, the study would serve as literature
that would add to academic knowledge in the area of corporate governance in
small and medium sized businesses in Ghana. Finally, it would provide insight
to support future research regarding the implementation and practices of
corporate governance and its importance in the survival and success of SMEs
within the context of developing countries.




Literature review

The study will be
underpinned by the agency
theory; the stewardship theory; the stakeholder theory; the resourced-based
theory and the resource dependency theory. Contrary to previous studies that
were based on agency theory, the stewardship theory is the main theory
underpinning this study while the others play a complementary role. There are
some weaknesses of some of the measures of corporate governance adopted
by large firms for the study of SME governance and thus, justifies the need for
the indices that will be employed in the study. The variables to be used
include board of directors/advisors, corporate social responsibility,
stakeholder engagement, managerial and strategic competence of managers.



Both primary
and secondary data sources will be used for the study.  The primary data will be collected through
the use of questionnaire administered to owner/managers of SMEs in the Accra
Metropolis. The secondary data will be collected from journal articles, books,
publications, the internet and official reports from the National Board for
Small Scale Industries and the Association of Ghana Industries. The Library
will be visited for publications such as books, professional and academic
journals, and reports.


and sampling technique

The optimum sample size
would be used to fulfil the requirements of efficiency, representativeness and
reliability since unnecessarily large sample size would bring about data
duplicity besides having cost and time implications while a small sample size
would not be representative (Kariuki, Wanjau & Gakure, 2011). The study
will concentrate both on publicly listed corporate organizations on the Ghana
Stock Exchange and small unlisted firms. Further, in order to acquire a diverse
category of companies with differing interests in the kinds of business they
pour their resources in, companies representing different industries (that is,
entertainment, fisheries, alchohol, manufacturing and so on) in Ghana will be
selected, where a letter will be sent to seek a list of their shareholders. Simple
random sampling technique (using graphing calculator) will be used to randomly
select respondents for inclusion into the sample electronically. A graphing
calculator is a soft-ware programme that allows a researcher to randomly
generate integers after specifying the size of the population and sample
required for a study. It is convenient and faster than the manual method of
trying to generate random figures.  The
owners-managers of SMEs were the target respondents. These owners-managers were
chosen because they had vital information in relation to the governance and
financial performance of these firms. The institution to be selected can either
be a Ghanaian or foreign company.


Data Processing and Analysis

Data collected from the
survey design will be analysed quantitatively using both descriptive and
inferential statistics. The data to be 
collected will  first be edited to
remove errors and then coded accordingly. The data obtained will be processed
using the computer software; Statistical Product and Service Solutions (SPSS
21.0 version).

A multiple regression analysis technique
and Baron and Kenny’s (1986) mediation regression procedure will be employed to
test hypotheses. Sobel’s test will also be used to ascertain the significance
of the mediation effect, if any.



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and Economics, 39(1), 218-228


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and medium enterprises
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