The effect of financial restructuring on the financial performance of commercial banks in Kenya

Abstract

The objective of this study was to determine the effect of financial restructuring on the financial performance of commercial banks in Kenya. Generally, the expectation is that financial restructuring when employed by the management of a firm; it should have some effects on the performance of the firm, in this case the performance of the commercial banks. The study was conducted on 11 commercial banks in Kenya, all of which are listed in the Nairobi Securities Exchange and which were in operation in Kenya during the six-year period of the study that is from 2008 to 2013. The various ratios that make the variables under consideration, namely debt ratio, dividend payout ratio and equity ratio of these commercial banks were computed from the various data collected and extracted from the annual financial statements of the said listed commercial banks for the period of study. The data was then analyzed using a multiple linear regression model using SPSS version 20, to establish if there was any effect of financial restructuring on the financial performance of these commercial banks and if existent; how significant the said effect would be. The finding of the analysis concluded that there exists a positive effect of financial restructuring of the financial performance of commercial banks in Kenya. However, the analysis further showed that the effect was very minimal and could only explain 26.7% of financial performance leaving the other more than 70% unexplained, at least not in the findings of the analysis of this study. The commercial banks in Kenya therefore, need to consider other factors even as they employ financial restructuring to enhance financial performance of their firms with a view to ensure survival in a competitive market while meeting their social objective.