The Relationship between corporate governance Practices and performance: The Case of banking industry in Kenya.
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The study as emphasized in the problem statement was to establish relevance between key governance tenets of transparency, disclosure and trust in influencing performance of banking institutions. In the design of data collection instruments, the study relied on the provision from Basel II on banking and supervision , and other studies on banking performances both locally and internationally. The study therefore analyzed the concepts surrounding governance and the debate as to whether it’s instrumental in influencing performance or not, looking at from both the commercial and banking perspective. The questionnaire was developed on the basis of the three tenets of the governance as source of obtaining information on the performance of the independent variables . While the independent variables was based on financial statements from the banking institutions and analyzed on the basis of their assets and performance ratios within the CAMEL framework which implies, capital adequacy, asset quality , management efficiency, earnings/profitability , and liquidity. It was apparent that some of these factors singularly do not provide convincing relationship between performance and the corporate governance practices. The study observed high preference of compliance to transparency and disclosure as compared to trust. This could have been attributed to the fact trust as phrased out in the questionnaire required stricter compliance with credit management as opposed to the other two which laid more emphasis on reporting and disclosure requirements. The outcome of the study as concluded in the findings and subsequent conclusion reveals that banks have higher affinity to comply with transparency tenets than the other two that’s disclosure and trust. Transparency as a major component of governance was noted to be influential for changes affecting the level of capital adequacy and other earning ratios, within which the Pearson correlation and regression analysis were within similar confidence limit Though, transparency was conspicuous among these ratios, it was not consistent with all them, thus becoming an area of concern for further research as to whether transparency is widely practiced due to stricter requirement by these institutions or it coincides with other requirements needed from banks to comply with. In conclusion, it’s not conclusive to say that governance tenets are important in determining banking performances, because the relationship was not witnessed across the board.