Composition of Board of Directors and Performance of Commercial Banks in Kenya

Abstract

The purpose of this study was to determine the composition of board of directors and performance of commercial banks in Kenya. The study was guided by three specific objectives; to evaluate the effect of board size, board independence and gender diversity on performance of banks in Kenya. Similarly, the study was informed by two theories such as resource based view and stewardship theory. Resource based view is among numerous theories of organizational behavior that is in line with the human capital view of the people in a company. This theory ensures that competitive advantage is created through resource application within the organization. According to stewardship theory, managers are considered to be individuals that are really trustworthy who will take care of the corporation owners’ interest. The derivation of this theory is from the representation of a man with somewhat different behavior based on the view that human beings is preponderantly organized and united in their appearance. Researcher applied descriptive survey and data was collected using questionnaires. Study also targeted 40 commercial banks where data was collected using census approach. Descriptive statistics was employed to analyze data provided by the participants. The findings established that size of the board, board independence and gender diversity positively correlates with organizational performance. Concerning the findings, research revealed that board size significantly influences performance of commercial banks. This was supported by a p value of 0.004 and β = 0.146. It can be noted that an increase in the performance of banks can be linked to an increase in board size thus indicating a significant relationship between board size and performance of commercials banks. Similarly, research established a positive correlation between board independence and performance of commercial banks generating a p-value of 0.009 and β = 0.142. Thus, a rise in performance of banks can be attributed to increase in board independence. Therefore, board independence is a strong predictor of the changes noted in organizational performance. In relation to the third objective, results revealed that gender diversity significantly affects performance of banks generating a p-value of 0.02 and β = 0.045. This concludes that gender diversity is a predictor of the increase or decrease of organizational performance. Therefore, the scholar concludes that these variables predicts changes in performance of the firm. This study recommends institutions to establish suitable boards with capacity to make sound decisions which promises efficiency. Finally, further studies should be advanced in this area to enhance this study and for more comparisons.