The Effect of Ownership Structure on the Financial Performance of Commercial Banks in Kenya

Abstract

This paper makes a strong input to business literature by examining the effects of ownership structure on financial performance of commercial banks in Kenya. The divergence of shareholders voting right enables them to acquire and exercise control with considerably minimal involvement of equity. Zeitun and Tian (2007) underscored the significance of the study of the effect of ownership structure and concentration on a firm’s performance to the literature of finance theory. The study therefore investigated whether there is an association between Ownership structure and the performance of the 43 commercial banks in Kenya and assess the impact of ownership to the outstanding performance by locally owned and government owned banks. The objective of the study was to determine the effect of ownership structure on the financial performance of commercial banks in Kenya. Secondary data is on bank ownership and accounting data from financial annual reports of all the respective banks from the NSE and in the CBK website for a period of five years between the year 2009 and 2013. Multiple regression analysis was used to determine the effect of ownership structure on the financial performance of commercial banks in Kenya. From the findings the study revealed that ownership structure positively affects the financial performance of commercial banks in Kenya. The study also revealed that there was strong positive relationship between ownership structure and financial performance of commercial banks in Kenya. The study further revealed that a unit increase in foreign ownership would lead to increase financial performance of commercial banks in Kenya. The study found that domestic ownership of the bank significantly affects the financial performance of commercial banks in Kenya. From the finding the study concludes that government ownership significantly affect the financial performance of commercial banks in Kenya. From the finding the study revealed that a unit increase in ownership concentration would lead to increase in financial performance of commercial banks in Kenya.