The Effect of Corporate Governance on Earnings Yield for Commercial Banks Listed on the Nairobi Securities Exchange

Abstract

The objective of the study was to determine how and the extent to which corporate governance at the eleven listed banks at the Nairobi Securities Exchange impacts the earnings yield. It also aimed at reviewing the increasing body of theoretical and empirical studies that have endeavored to examine the range of magnitude and effects of corporate governance practices on the earnings yield. The study employed a cross sectional, and analytical research design in carrying out the research. The target population was all the listed eleven listed banks at the Nairobi Securities Exchange. Secondary sources of data were employed, and data was collected on; the earnings after tax, outstanding shares, share price, corporate governance scores, capital adequacy, customer deposits, and total assets. The unit period of analysis was annual, and data was collected for the period from 2013 to 2017. The period comprised of five years. The control variables, capital adequacy and liquidity, had no significant effect on the earnings yield. The study concluded that that corporate governance and earnings yield have a positive significant relationship. Thus, stronger corporate governance practices lead to higher earnings yields. The study recommended that; the government regulatory institutions can advocate the establishment and maintenance of corporate governance mechanisms to boost firms’ earnings. The Central Bank of Kenya can formulate policies and make informed decisions in the area of corporate governance for financial institutions on the backdrop of the information that corporate governance significantly affects positively the banking firms performance. Recommendations can also be made to investment banks, stock brokerage firms, institutional investors, and individual investors, to enable them ‘beat the market’ and make above average market returns. They can achieve this by investing in firms with good corporate governance practices. The management of diverse firms can also utilize the study findings to strengthen their corporate governance mechanisms in order to improve firm performance.