Effect of Board Characteristics on Financial Performance of Commercial Banks Listed at Nairobi Securities Exchange

Abstract

Over time, corporate boards have proven critical for the operation and oversight of firms, the monitoring of management and provision of strategic directions. The Research Objective of this study was to ascertain the effects of board characteristics on financial performance of listed commercial banks in Kenya at the Nairobi Securities Exchange. This study was based on three theories: Stewardship theory, stakeholder theory, and resource dependency theory. The research used a descriptive research design in studying the board characteristics and the effect on financial performance among the listed commercial banks. The population used in this study was all listed commercial banks. The study was a census survey covering all the 11 commercial banks at the Nairobi Securities Exchange.Data was collected from 2014 – 2018.The study used secondary data on the study variables that included board size, board gender diversity, board composition, bank size, bank liquidity and capital adequacy which was obtained from the banks audited financial statements The study covered descriptive and inferential statistics. Descriptive statistic was conducted through multiple comparisons of the means from the variables. On the other hand, inferential statistics used Pearson product moment correlation analysis design and analysis through regression method. Correlation coefficient was used by the researcher to describe the relationship between the study independent and dependent variables. The study used coefficient of determination to evaluate the model fit. The model had an a coefficient of determination (R2) of 0.473 and which implied that 47.3% of the variations in commercial banks financial performance are explained by the board characteristics investigated. The study findings indicate that board size had a positive correlation that was insignificant) .Board gender diversity had a negative but insignificant correlation .Board composition had a positive but insignificant correlation .While bank liquidity had a negative but significant correlation .Capital adequacy had a positive and significant correlation Firm size had a positive significant correlation. Based on the findings of this study recommended that the board sizes of the banks should be averaged at 12 director and a minimum of 7 for proper oversight of the banks as well as the managers of the listed banks should ensure they meet the minimum capital requirement as set out by CBK for improved financial performance and attracting clients through maintenance of optimum liquidity ratios as they give the banks a positive reputation. Further board composition in terms of independent directors to the ratio of total directors should be balanced to provide for impartial decision making on the banks strategic directions.