The impact of the CMA corporate governance code on the Financial performance of commercial banks in Kenya
Recent empirical work in developed markets shows evidence for higher valuation of firms in countries with a better legal environment. The study investigates whether the CMA corporate governance code has any impact on the financial performance of commercial banks in Kenya. The Kenyan CMA guidelines resemble the guidelines set out by the Organization for Economic Cooperation and Development (OECD) code as they stipulate the main board duties as those of monitoring and disclosure. These guidelines appear to indicate that the role of expertise is that of monitoring rather than value addition for the purposes of increased operational efficiency; hence in the board independence versus board competence debate the CMA guidelines are very similar to the OECD and Cadbury Report guidelines in that they emphasis board independence as a means to resolving of principal-agency conflicts. In constructing a broad Kenyan corporate governance index (CGI) for Kenyan commercial banks, this study lays emphasis on board competence; it documents a positive relationship between CMA guidelines and Return on Assets and negative relationship between CMA guidelines and Return on Equity. For both listed and nonlisted banks the relationship between the corporate governance index (CGI) and the TRWA, as well as between CGI and both ROA and ROE, is significant and positive; indicating that adherence to CMA corporate governance guidelines has not led to neither improved bank solvency nor improved returns for both the listed and non-listed bank samples of 28.