The Effect of Board Structure on Financial Performance of Commercial Banks in Somalia: the Case of Mogadishu

Abstract

Board structure has basis on creating credibility, safeguarding transparency and accountability in addition to ensuring an effective information disclosure channel that fosters commendable corporate financial performance. Further, board structure develops trust in addition to sustaining confidence among groups within an organizational. The study aimed at determining the effect of board structure on financial performance of commercial banks in Somalia. To achieve this objective, the study explored the theories guiding the study including: Agency theory, Stewardship theory and Stakeholder theory which all explain how board structure impact on the financial performance of commercial banks in Somalia. It adopted a descriptive research design from secondary data, which was covering 5 years from 2012-2016. Data analysis was through descriptive statistics which comprised of the arithmetic mean, variance and standard deviation. The results revealed strong Positive association between the Directors independence, Ownership and the returns of banks during the study period. The results also show negative relation to foreign directors and Board size. The study concluded that performance of commercial banks in Somalia is significantly influenced by Directors independence, board meetings, ownership, foreign directors and board size. The study recommends that for improved performance of commercial banks to be realized in Somalia, effectiveness of the board has to improve through increasing the number of foreign ownership in commercial banks in the country who will in turn bring the experience and skills necessary to improve their performance.