| dc.description.abstract | Over the past three decades, the world has experienced high profile cases of corporate
failures. Consequently, there has been increasing attention being paid to corporate
governance and to the effectiveness of boards, internal controls, audit committees,
disclosures, and the independence of directors and auditors. Indeed, the Basel
Committee on Banking Supervision has called attention to the need to study,
understand, and improve the corporate governance of financial entities. In Kenya, the
Central Bank of Kenya has established corporate governance mechanisms within the
CBK Prudential Guidelines. The Board of Directors is the main custodian of prudent
corporate governance in organizations including the commercial banks. This is
executed either directly or through its various sub committees. The Board Audit
Committee (BAC) is key in ensuring adherence to set guidelines and standards. The
findings contained in the CBK supervisory reports of 2010 and 2011 on incidences of
non compliance to set guidelines may be an indicator of ineffective corporate
governance and audit committees. The study seeks to establish the relationship
between board audit committee effectiveness variables and financial performance of
commercial banks in Kenya over the period 2007 to 2011. It examines specific
structural and operational characteristics of Audit Committees (ACs) for the banks;
these banks have strived to adhere to the Central Bank of Kenya’s regulations and
prudential guidelines. The research design for this study was a cross sectional survey
employing multiple regression analysis. The design was formalized and structured
with clearly stated investigative questions. The target population of interest was all
registered commercial banks operating in Kenya. There are 43 commercial banks in
Kenya. All the banks were considered for this study, of which data for five year
financial periods between 2007 and 2011 was obtained for 25 banks. Both primary
and secondary data was used for this study. The main findings are as follows: there is
a significant positive correlation between percentage of BAC members with financial
expertise and ROE; the percentage of Independent Non Executive Directors in the
BAC has a significant positive correlation with ROE; changes in the BAC
membership do not affect ROE; the attendance rate for BAC meetings has a
significant positive correlation with ROE; there exists a significant positive
correlation between size of the BAC and ROE; and the number of BAC meetings in a
financial year has a significant effect on ROE. The key limitation of this study is the
use of a quantitative approach, not supplemented by in-depth case studies, that leads
to generalization without investigating specific factors typical of a qualitative study. A
key implication of this study to the commercial banks and regulators is that they
should pay attention to board audit committee effectiveness particularly emphasizing
on competence, commitment and independence as this is highly correlated to financial
performance. This is an empirical study about the practices and compliance of ACs
among the commercial banks in Kenya. | en |
