Influence of Board Composition on Financial Performance of Commercial Banks in Kenya

Abstract

National economies are dependent on financial governance, transparency, and competitiveness as they are the determinants of value. Transparency and management of corporations is a concern to most investors around the globe. The national legislatures are led to focus on maintaining clarity in financial performance and accountability relating to corporate governance practices. Board “composition in corporate governance has been identified to be vital in the performance of a company particularly in developing and developed economies. The study main objective was establishing how the board composition affect the Kenyan commercial banks financial performance. The study achieved this by examining the theories and empirical works that has been undertaken with regards to establishing the magnitude degree and impact of board composition on the commercial banks financial performance. The study target population comprised of the 42 commercial banks licensed in Kenya. The researcher used secondary data. The panel data was acquired for the period of the study with unit of analysis being a year. The researcher analysed the data for inferential statistics that involved correlation and regression analysis. Panel multiple regression equation was done employing use of estimation method of Ordinary Least Square in order to find out the association amongst board composition and the ban size which was the control variable to the commercial banks performance. The study findings revealed that board independence negatively and significantly related with financial performance. Further findings found out that bank size had as positive and significant association with the banks financial performance. The recommendations of the study were that the CBK and the national treasury ought to ensure that commercial banks implement corporate governance principles which guarantee that there is suitable board composition which is in compliance with corporate governance code. The study additionally made recommendation to the management of commercial banks, consultant as well as to other financial institution management to improve on the board composition and increase bank size so as to enhance the financial performance of their firms and precisely direct the board composition elements to board size and independence so as to improve financial” performance.