The Effect of Corporate Governance on Financial Performance of Commercial Banks in Kenya

Abstract

The research study was undertaken with the aim to establish the effect corporate governance has on commercial banks financial performance. The return on assets ratio was used to measure financial performance. Financial performance was measured using return on assets ratio. Corporate governance on the other hand was measured by the variables size of the board of directors, composition of the board of directors, board remuneration and the power a CEO has. Asset quality, management efficiency, capital adequacy, board core committee composition, and board diversity. The study used a descriptive research design. The population of the study consisted all the forty two commercial banks in Kenya. Stratified random sampling was used to obtain a study sample of eighteen commercial banks. Secondary data used by the research study was collected from published annual reports and financial statements of the studied commercial banks. The study achieved a response rate of ninety four percent as only seventeen of the sampled banks had complete set of the data sought. The data collected was organized and summarized into tables. Data analysis was done using descriptive statistics and correlation and two stage least squares regression analyses. The research study concludes that corporate governance has positive effect on Kenyan commercial banks performance financially. We recommend therefore that commercial banks in Kenya should therefore be put in place apt corporate governance structures so as to assure and maximize returns to the banks owners