Effects of Corporate Governance on the Financial Performance of Commercial Banks in Kenya
Abstract
Corporate governance theories suggest a positive relationship between corporate governance
and financial performance. Financial performance is an outcome of good corporate governance
practices adopted by firms. The study sought to establish the impact of corporate governance
on the financial performance of commercial banks in Kenya. The researcher adopted a
correlational research design, generally used to measure relationship between variables.
Secondary data was obtained from annual reports downloaded from central Bank of Kenya.
The data was analyzed using descriptive statistics as well as inferential statistical analytics.
Results showed that ownership structure, board independence, board composition and bank
size as predictors had a strong collective relationship with financial performance (r=0.560) and
contribute 31.4% to the change in financial performance (r2= 0.314). From the regression,
ownership structures, board independence and bank size had a positive effect on financial
performance. On the other hand, board composition showed a negative effect on financial
performance. The study concludes that ownership structures, board independence and bank
size have a positive effect on financial performance of commercial banks in Kenya. On the
other hand, board composition has a negative effect on financial performance of commercial
banks in Kenya. The study recommends reduced number of executive directors within the
commercial banks. The study also recommends increased local ownership with an increase in
number of independent directors. There is also the need for increased value of assets for
increased financial performance. Further research is recommended based on other factors of
financial performance, different variable measures, different firms and based on primary data.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1421]
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