Country-level corporate governance and foreign direct investment in Africa

The purpose of this study is to examine the link between country-level corporate governance and foreign direct investment in African economies for the period 2009-2015.

The authors use annual panel data of 40 African economies over the period of the study and use the system generalized method of moments (GMM) to establish the relationship between country-level corporate governance and foreign direct investment.

The authors find that African economies characterized by firms with high ethical values tend to attract a great deal of foreign direct investment. In addition, they highlight that when an economy is associated with effective corporate boards, it tends to attract much foreign direct investment. Further, this study reveals that the level of minority shareholders’ interests’ protection in an economy has a significant positive relationship with foreign direct investment. Finally, they document a negative relationship between effectiveness of regulation of securities and exchanges and foreign direct investment.

It is advised that sound and implementable corporate governance structures devoid of political interferences should be put in place in African economies, if the aim of using foreign direct investment to mitigate poverty by 2015 as part of the Millennium Development Goals is to be attained.

Empiricists have devoted considerable effort to estimate the factors that influence the level of foreign direct investment into African economies without taking into consideration the corporate governance structures in these economies. However, this paper seeks to examine the relationship between country-level corporate governance structures and foreign direct investment in African economies.