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Research Article | Open Access
Volume 6 | Issue 12 | Year 2019 | Article Id. IJEMS-V6I12P119 | DOI : https://doi.org/10.14445/23939125/IJEMS-V6I12P119

The Relationship between Corporate Governance and Financial Performance of Commercial Banks in Kenya

Herick Ondigo, PhD

Citation :

Herick Ondigo, PhD, "The Relationship between Corporate Governance and Financial Performance of Commercial Banks in Kenya," International Journal of Economics and Management Studies, vol. 6, no. 12, pp. 167-183, 2019. Crossref, https://doi.org/10.14445/23939125/IJEMS-V6I12P119

Abstract

Academicians, practitioners as well as regulators consider prudent Corporate Governance and efficientfinancial performance as major goals of commercial banks. The Central Banks and Capital Market Authorities and other regulatory authorities of different jurisdictions have, from time to time, issued guidelines on both Corporate Governance and Risk Management to ensure proper functioning of the financial system that aligns the interest of  the banks with other  stakeholders .In spite of the stringent regulations and monitoring mechanisms  a number of banks have failed to operate above board forcing the regulators to intervene to restore  sanity in the financial system. The objective of the study was to establish the relationships between Corporate Governance and Financial Performance of commercial banks in Kenya.Different performance metrics, quantitative and qualitative, have been used in the evaluation of Banks performance by regulators and scholars. This study used the CAMEL rating system that analyses capital adequacy, asset quality, management quality, earnings, and liquidity to measure the financial performance of commercial banks. The CAMEL system has become important tool of measuring the overall soundness and safety of banks in the light of global financial crisis and bank failures. The study used correlation and multiple regression analysis to establish the relationship between Corporate Governance and bank financial performance.The study was anchored on the Agency theory, adopted a positivism research philosophy and used a cross sectional descriptive research design. The population consisted of 43 commercial banks registered in Kenya as at 31st December 2014. Descriptive statistics and diagnostic tests were conducted on the data thereafter inferential statistics namely correlation analysis and regression analysis were used to test the hypotheses. The study found that a statistically significant relationship exists between Corporate Governance bank Financial Performance. The study recommends that regulators, boards and management of commercial banks to ensure congruence in their activities (oversight, implementation and monitoring) with corporate objectives to enhance improved bank Financial Performance and value maximization.
 
 

Keywords

Corporate Governance, Financial Performance, Commercial Banks and Kenya

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