The Relationship Between Busy Directors and Financial Performance of Commercial Banks in Kenya

Abstract

The relationship between busy directors and firm financial performance has been widely researched on in the developed nations like the US and other emerging economies like India. However, very little information has been published on developing African countries like Kenya. This study examines the relationship between busy directors and financial performance of commercial banks in Kenya. In other studies, aspects of multiple directorship directors that work independently have been shown to correlate positively with the improvement of the company’s value. This supports the hypothesis of quality that has been attributed to the years of experience in their line of service which proposes that the busy directors with multiple directorships are better. This has also been shown to contrast heavily with the current existing evidence of busy directors.

This study is tested by a regression model to determine the relationship between busy directors and Commercial banks performance in Kenya. This involved a regression of the three independent variables with the bank’s financial performance. The independent variables include busy boards, the average directorships per outsiders and the percentage of busy directors. The regression is performed against the performance measure of Return on Asset (ROA) which is the key dependent variable for this study. The results show that there is a positive and statistically significant relationship between busy directors and financial performance of commercial banks in Kenya. The findings implicate that busy directors are good stewards and valuable assets for commercial banks due to their expertise, reputation and business contacts which arguably make them excellent advisers leading to maximization of shareholders’ value.