Relationship Between Corporate Governance and Financial Performance of Unlisted Commercial Banks in Kenya

Abstract

Nearly all unlisted commercial banks in Kenya have adopted principles of good corporate governance but they are yet to realize optimal financial performance. It is unclear how corporate governance affects ROA of commercial banks in Kenya that are unlisted. Therefore this particular study sought to find out the influence of corporate governance on financial performance of commercial banks operating in Kenya that are unlisted. To achieve these objectives, the study used explanatory research design and collected secondary data for 31 unlisted commercial banks in Kenya for the years between 2010 and 2015. Descriptive and inferential analysis techniques were adopted to test study hypotheses. Descriptive analysis comprised of mean, standard deviation, coefficient of variation, skewness and kurtosis while inferential analysis comprised of correlation analysis, Analysis of Variance (ANOVA) and multiple linear regression analysis. The study found that disclosure of information and firm size were significantly correlated with ROA. Random effects model showed that disclosure of information, leverage and firm size had significant effect on ROA while board composition and audit committee had no influence on ROA of commercial banks in Kenya that are unlisted. The study recommended that unlisted commercial banks should not disclose more information regularly to their stakeholders in order to improve their ROA. Additionally, unlisted commercial banks should seek to raise their capital base and assets in order to increase their leverage and ROA.