The Relationship Between Corporate Governance and Risk Management Practices Among Commercial Banks in Kenya

Abstract

Increased concerns regarding corporate accountability in various developed nations have been associated with the need for appropriate risk management and internal control systems. Uncertainty regarding the association between the focus of voluntary corporate governance guidelines and risk management and internal control activities in practice has created a research gap in this area. The objective of this study was to establish the relationship between corporate governance and risk management practices of commercial banks in Kenya.

The present study used a cross-sectional survey design. The population of this study was all the 44 commercial banks which had been operating in Kenya for at least five years. Data was obtained from primary and secondary sources. Data on risk management was collected through a questionnaire designed for the risk managers in each of the banks. Corporate governance data was collected from the annual statements. The data sought was on board dimensions such as size (BOARD_SIZE), CEO duality (CEO_DUAL) and diversity (BOAD _ DIV). Data was analysed using regression analysis.

The study found that the level of corporate governance was moderate as shown by the mean score of 3.048. The study found that the most managed risk in the banking sector was foreign currency risk (4.22). This is followed by interest rate risk (4.11) and equity price risk (3.44). The least managed risk was commodity price risk (1.78). The study also noted a high significant positive correlation between risk management and corporate governance (R = 0.754, p<0.05).

The study also concludes that there is a significant influence of corporate governance on risk management practices of commercial banks in Kenya. The study recommends need for banks to entrench more measures to manage risks. The study also recommends that the banks should also work on enhancing their corporate governance in terms of board characteristics.