Influence of Corporate Governance on Internationalization of Commercial Banks in Kenya

Abstract

The rate of internationalization among Kenyan Banks is not uniform. Key among the causes identified for the perennial bank failures in Kenya is poor adherence to corporate governance has not been adequately realized, leading to more bank failures and other imminent ones in the offing. The collapse of banks such as Trust bank, reliance bank, bank of commerce and credit international has not given a clear insight on the need for corporate governance. The objective of this study was to examine the influence of corporate governance on internationalization of Commercial Banks in Kenya. The study was guide by the following theories; competitive advantage theory, Agency theory and stewardship theory. This study utilized a descriptive research design to gather and analyze data. The population for this study was all the licensed 43 commercial banks in Kenya. There was no sampling in this study since the population size is small; therefore, this study adopted a census approach. Primary data was collected through the use of questionnaires. Questionnaires were hand-delivered to the respondents to fill. The researchers then employed the drop and pick method in administering the questionnaire. Secondary data was sought from publications and journals. The data collected through the use of questionnaires were coded and entered into a computer system. The quantitative data was analyzed through the use of the Statistical Package for Social Sciences (SPSS version 24). The study adopted both descriptive and inferential statistics for data analysis purposes. Means and standard deviations formed part of the descriptive statistics which analyzed the quantitative data and also capture the characteristics of the variables under study while inferential statistics involved linear regression. The study revealed that institutional ownership influence foreign direct investment and that tradable shareholding influence decision to venture abroad. The study found that board composition affects decision on internationalization and that board diversity enriches with ideas on internationalization. The study also indicated that bank CEO compensation became more sensitive to internationalization as bank management became less regulate. The study found that their risk taking incentives will depend on the degree to which their best interest, that managers are likely to be risk-averse and that managerial is positively associated with corporate performance. The study concluded that managerial incentives having the greatest effect on internationalization of commercial banks in Kenya followed by CEO compensation then managerial incentives and ownership had the least effect on internationalization of commercial banks in Kenya. The study recommends that since ownership structure affect internationalization of commercial banks there is a need to balance between local and foreign investors and that the management should look at the competence of the board members during recruitment.