Corporate Governance Practices and Financial Performance of Commercial Banks Listed at the Nairobi Securities Exchange in Kenya
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Date
2024
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Publisher
Kenyatta University
Abstract
Commercial banks listed at the Nairobi Securities Exchange play a crucial role in the local
economy of Kenya as they serve as key intermediaries between savers and borrowers,
facilitating the flow of funds in the economy through various financial services such as
lending, deposit-taking, and investment activities. The financial performance of
commercial banks listed at the Nairobi Securities Exchange has generally shown resilience
and improvement despite challenges such as regulatory changes, economic fluctuations,
and the impact of global events like the COVID-19 pandemic. The study established the
relationship between corporate governance and financial performance of commercial banks
listed at the Nairobi Stock Exchange. The research specifically sought to ascertain the how
the board size, gender diversity, frequency of board meetings and board share ownership
are related to the financial performance of commercial banks. The study was anchored on
stakeholders, stewardship, agency and modern portfolio theory. Descriptive research design
was adopted. The target population was commercial banks listed in Nairobi Securities
Exchange during years 2016 to 2020. A census approach was used where the entire target
population was involved in the study. The study used secondary data obtained from the
listed commercial banks published in Kenyan Investors website, Capital Markets Authority
Library, Nairobi Securities Exchange websites, and their websites. Inferential and
descriptive statistics were utilized in data analysis. Panel Data Regression Model was
analyzed using Stata 16. Tables and figures were used in data presentation. From the
findings the average board size was 12 in 2016, 10 in 2017, 8 in 2018, 11 in 2019 and 9 in
2020. Average gender diversity in favour of women was 24% in 2016, 28% in 2017, 26%
in 2018, 32% in 2019 and 30% in 2020. Average annual number of board meetings were 14
in 2016, 16 in 2017, 18 in 2018, 20 in 2019 and 22 in 2020. Board share ownership was
2.10% in 2016, 2.32% in 2017, 2.61% in 2018, 2.92% in 2019 and 3.12% in 2020.
Correlation results showed that board size, frequency of board meetings and board share
ownership were positively and significantly correlated to the financial performance while
gender diversity was positively and insignificantly correlated. Additionally, regression
results showed that board size, frequency of board meetings and board share ownership
were positively and significantly related with financial performance while gender diversity
was positively and insignificantly related. The study concludes that corporate governance
practices, including board size, gender diversity, frequency of board meetings, and board
share ownership are important in shaping the financial performance of commercial banks
listed at the Nairobi Securities Exchange. It is recommended that commercial banks listed
at the Nairobi Securities Exchange consider optimizing corporate governance structures by
carefully assessing board size, enhancing gender diversity, ensuring adequate frequency of
board meetings, and aligning board share ownership with the aim of improving financial
performance and sustaining long-term value creation.
Description
A Research Project Submitted to the School of Business, Economics and Tourism in Partial Fulfillment of the Requirements for the Award of the Degree of Master of Business Administration (Finance Option) of Kenyatta University, May 2024.