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

Abstract

The relationship between CG and the financial performance still evokes much debate. Those in favour of having sound governance practices have brought forward their argument on performance and sound governance go hand in hand and seeing that this relates to banks; it ensures that there is economic stability. There are those who do not share a similar mind and as a result encouraged this study to appreciate whether there indeed exists an interrelationship between CG and performance. The study was carried out on the commercial banks licensed in Kenya due to the paucity of data that covers this field. The theories that supported the study included Agency theory, Stakeholder theory and Managerial hegemony theory. Reliance was placed on published financial reports of the licensed banks to analyse the data. The study used descriptive statistics in the study. The study used the statistical package for social science (SPSS) to carry out the analysis. The study found that there does indeed exist a relationship between CG practices and the financial performance of commercial banks. The variables being the board’s composition showing favourability to having more NEDs in the boards as well as improvement in gender diversity. Independence of internal audit committee was found to impact performance by ensuring a direct reporting line to the BAC that is chaired by a NED. Attendance to board meetings was paramount to achievement of financial outcomes. It was recommended that further studies should be done in the field and using different industries in order to get conclusive results in the relationship between the two.