The Link Between Small Business Governance and Performance: The Case of the Ghanaian SME Sector

The present study set out to examine corporate governance practices of SMEs in Ghana and whether there is any linkage between these governance practices and financial performance. We employed two levels of interaction to achieve our objectives: The first is an interview for a general understanding of governance issues in the SME sector and the subsequent design of a questionnaire for an exploration of the linkages between governance issues and firm financial performance by employing a linear model. The study reveals that governance structures in SMEs are jointly influenced by credit providers and business ethical considerations. The regression results show that board size, size of audit committees, corporate ethics and the proportion of outsiders on the audit committees have negative impact on financial performance while independence of the board and the presence of audit committees enhance firms' financial performance. The findings have some policy implications in that it shows that exporting SMEs are relatively profitable. It is recommended that in an attempt to promote exports, the legal and regulatory environment should be conducive for these firms. KEYWORDS: Export sectorfinancial performanceJEL Classification: G34C23Governance practicesSMEs The authors are grateful to the anonymous referees for useful and valuable comments. We also gratefully acknowledge the support of the DANIDA Centre for International Business Research for funding. All errors are the responsibility of the authors. Notes Notes: All regressions include a constant. T-statistics are in parenthesis and Probability values in square brackets. ∗∗indicate significance at 5 percent level. Institute of Statistical, Social and Economic Research (ISSER), the State of the Ghanaian Economy, 1997. Institute of Statistical, Social and Economic Research (ISSER), the State of the Ghanaian Economy, 2003. "Accounting Firms Facing More Pressure From S.E.C." Wall Street Journal, September 1, 1998, p. C5.