The Effect of Boards of Directors Characteristics on the Financial Performance of Listed Commercial Banks in Kenya

Abstract

Various companies especially the financial institutions around the globe have been facing corporate governance issues that include and not limited to poor management of the organization’s risks, financial related frauds perpetuated by people entrusted with governance as well as unreliable corporate leadership. This academic paper aimed to determine the influence of a select board characteristics, profitability and firm size as the control variable between board characteristics and profitability of listed banks at the local bourse. The select board characteristics include the effect of board gender diversity and the inclusion of women in the board, as well as foreign directors. Despite the tightened oversight by authorities, bank’s management at board’s level has continued to experience a weakening trend in Kenya. This has resulted to collapse of banks such as Chase Bank, Imperial Bank, Dubai Bank Kenya among others. Three theories that are at the heart of this research are the agency, stewardship, and the stakeholder theory served as the foundation for the research. The research suggests that banks in Kenya should focus on optimizing their board composition to enhance financial performance. Regular evaluations of director independence can help maintain the board's effectiveness and governance standards. Moreover, banks should strengthen their risk management practices to ensure financial stability and have regular updates on risk management framework.