Board Diversity and Financial Perfomance of Kenyan Commercial Banks
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Date
2020Author
Hussein, Mohamed, A
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
Board composition is a major determinant of an organization’s financial performance. In the
previous two decades, policy makers, scholars and professionals have engaged in discourse about
role of boards as a major component of corporate governance. A section of scholars have
highlighted how board directors’ attributes can have significant impact on company performance
due to their varying orientations. Accordingly, the typical attributes used to categorize the
various board members includes age, education gender, and the individual’s corporate
experience. Board members chosen subjectively rather than by merit can fail to be objective with
the interests of the organization. The objective of the study was to establish the impacts of
having a company board that has embraced diversity and its short and long term impact on
company’s profitability with a focus on Kenyan commercial banks. It also aimed at reviewing
the increasing body of theoretical and empirical studies that have endeavored to examine the
range of magnitude and effects of board diversity on the financial performance of commercial
banks. The target population was all the 42 licensed commercial banks. Secondary sources of
data were employed. Panel data was utilized, data was collected for several units of analysis over
a varying time periods. The research employed inferential statistics, which included correlation
analysis and panel multiple linear regression equation with the technique of estimation being
Ordinary Least Squares (OLS) so as to establish the relationship of board diversity and financial
performance of commercial banks. The study findings were that board diversity significantly
influences financial performance and it can be utilized to significantly predict financial
performance. Further findings were that average board experience had both a significant positive
association and relationship with financial performance. An additional finding is that directors’
age has a significant positive association with financial performance but has an insignificant
relationship with financial performance. The final finding was that both gender diversity and
educational qualification neither had a significant association nor relationship with financial
performance. Policy recommendations are made to the National Treasury and CBK to direct
commercial banks, and by extension other financial institutions, to implement corporate
governance principles that ensure appropriate board diversity and adhere to a corporate
governance code. Recommendations are also made to commercial bank practitioners, and by
extension other financial institutions practitioners and consultants to enhance board diversity in
order to augment the financial institutions’ financial performance and to mainly focus on the
board diversity aspect that entails average board experience in order to enhance financial
performance.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1311]
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