Effects of Firm Characteristics on Financial Performance of Quoted Commercial Banks in Kenya
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Date
2016
Authors
Lelenguiya, Petrinah Nanyandaa
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Commercial banks playa critical role in economic growth and development, income generation
and job creation especially in developing countries. With the increasing trend of sudden corporate
failures in both global and local context, shareholders and management are increasingly becoming
more concerned with the factors that affect financial performance of firms. The Banking sector in
Kenya is an important sector whose performance is instrumental in the economic growth and
development. The study therefore sought to determine the effects of firm characteristics: the
period of operation of the firm, the asset base of the firm, market size and board characteristics, on
the financial performance of quoted commercial banks in Kenya. It was guided by the following
specific objectives: to ascertain the effect of period of operation, asset base, market size and board
characteristics on financial performance of Quoted commercial banks in Kenya. This study
adopted the descriptive research design and was a survey of the eleven commercial banks listed on
the Nairobi Stock exchange. The population of the study was all commercial banks in Kenya and
the target population was eleven, the quoted commercial banks on the NSE. Census sampling
method was used to select a sample. The study sample was eleven. The study used secondary data
obtained from the companies audited financial statements, management reports and the banks "
NSE and CBK websites, data recorded on a secondary data collection sheet and analyzed using the
multi regression analysis with the use of the Statistical package for social sciences (SPSS). The
findings were presented through figures and tables. The study found out that taking all other
independent variables at zero, a unit increase in period of operation will lead to a -0.04 decrease in
financial performance of the quoted commercial banks in Kenya. A unit increase in the asset base
will lead to a 0.122 increase in financial performance, also a unit increase in market size will lead
to a -0.268 decrease in financial performance while a unit increase in board characteristics will
lead to a 0.389 increase in financial performance of quoted commercial banks in Kenya. This
implies that the banks improve their financial performance by investing in more assets and
focusing on the board characteristics. The study also found out that taking all factors (period of
operation, asset base, market size and board characteristics) constant at zero, the financial
performance of the quoted commercial banks will be 15.15. The study findings indicate that the
firm characteristics under consideration had P values greater than 0.005, based on this the study
accepts the null hypothesis and concludes that the firm characteristics do not have a significant
effect on the financial performance of quoted commercial banks in Kenya. The study recommends
that managers need to analyze financial performance over time and establish ideal asset base,
board characteristics, market size and develop relevant strategies to maximize productivity and
improve performance of the quoted commercial banks in Kenya. Further studies should be done to
investigate the effects of firm characteristics on the remaining commercial banks not quoted at the
NSE and other sectors of the economy. Researchers, academicians and students should carry out
studies to investigate possible firm characteristics and factors that affect financial performance of
commercial banks in Kenya.
Description
A research Project submitted to the School of Business In Partial Fulfilment of The Requirements for the Award of a Degree of Master of Business Administration (Finance) of Kenyatta University. November 2016