Analysis of the effectiveness of banks' control mechanisms in Benin

Abstract

This article deals with banking governance and aims to analyze the effectiveness of the control mechanisms of banks in Benin, with regard to theories of corporate governance which offer a framework for analyzing the control mechanisms of managers. To this end, we have mobilized, on the one hand, the theories of agency and transaction costs which propose mechanisms to discipline the behavior of managers and, on the other hand, the theory of entrenchments which makes it possible to analyze the effectiveness of these mechanisms. To achieve our objective, we adopted the following methodological choices: our work undertakes verification and explanation process. We therefore find it relevant to adopt a hypothetico-deductive approach. To implement this approach, we chose a quantitative approach. The analysis of the literature allowed us to define and propose an appropriate measurement of the different variables retained as part of this research. We then developed a simultaneous equation model based on the Shrieves and Dahl (1992) model which constitutes the anchor point of numerous empirical works. We chose to use simultaneous equations in order to highlight the simultaneity of effects between the endogenous variables of our model. At the end of our analyzes which made it possible to understand the behavior of banks in Benin, we find that the banking control mechanisms are effective and contribute in a complementary manner to disciplining the behavior of banks in Benin, which results in an improvement in the level of capital and the performance of banks then the reduction of their level of risk. However, our results argue in favor of actions to improve internal governance within Beninese banks in accordance with international prudential recommendations. Furthermore, the chosen analytical framework is based solely on the explanatory power of the shareholder-disciplinary approach to governance, this can be seen as a limitation of this research.

 Keywords : Banking governance, prudential regulation, banking supervision

Classification JEL : G28, G38

Paper type : Empirical Research