Corporate Governance and Quality of Financial Reporting of Commercial Banks Listed at the Nairobi Securities Exchange, Kenya
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Date
2024-09
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Publisher
International Academic Journal of Economics and Finance (IAJEF)
Abstract
In Kenya, the banking sector is heavily
regulated to safeguard investor trust, given the
critical economic function of banks.
However, research indicates that even healthy
organizations operating financially secure
have experienced problems related to their
financial strategies. Several banking
institutions in Kenya have experienced
failures over time, largely attributed to
financial embezzlement linked to substandard
financial reporting. This issue has been
exacerbated by the persistent challenges
facing the emerging economy. Consequently,
publicly listed companies must incur
substantial agency costs to mitigate
information asymmetry and counteract the
self-serving behaviors of managers. As a
result, banking sector regulators have been
very active in the introduction of regulatory
policies to enhance the public’s confidence.
For instance, the Capital Market Authority in
Kenya replaced the earlier guidelines of
corporate governance that had been
established in the year 2002 with the 2015
Code, thus targeting to align and comply with
the best practices across the globe owing to
dynamic business environments. The study
purposed to assess the effect of corporate
governance on quality of financial reporting
of commercial banks quoted at Nairobi
Security Exchange. The specific research’s
main goal was to demonstrate how board
independence affected quality of financial
reporting among of commercial banks quoted
at Nairobi Security Exchange. The study was
based on Agency theory and Positive
Accounting theory. Positivist research
philosophy and explanatory research design
was adopted, obtaining secondary panel data
targeting all the eleven listed commercial
banks for the period 2017 to 2021. The study
utilized the panel regression model for
analysis. The target population encompassed
all the eleven listed commercial banks at NSE
under investigation from 2017 to 2021.
Census was applicable as the sampling
design. The analysed data was presented
using tables, graphs and charts. Corporate
governance practises showed adverse
relationship with quality of financial reporting
among listed commercial banks on Nairobi
Securities Exchange. The regression analysis
results revealed board independence had a
negative and significant influence (β1=-
0.0242, p=0.0158). Consequently, the study
suggests enhancement of board independence
to improve the effectiveness of independent
board members in strategic decisions made by
listed commercial banks at Nairobi Securities
Exchange during reporting process
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Citation
Kisanya, L. A., Njoka, C. Makori, D. (2024). Corporate governance and quality of financial reporting of commercial banks listed at the Nairobi Securities Exchange, Kenya. International Academic Journal of Economics and Finance, 4(3), 52-69