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.  
 "/> 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.  
 "/> 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.  
 "/> 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.  
 "/>

Call for Paper - Upcoming Issues

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

International Journal of Economics and Management Studies
© 2019 by SSRG - IJEMS Journal
Volume 6 Issue 12
Year of Publication : 2019
Authors : Herick Ondigo, PhD
10.14445/23939125/IJEMS-V6I12P119
pdf
How to Cite?

Herick Ondigo, PhD, "The Relationship between Corporate Governance and Financial Performance of Commercial Banks in Kenya," SSRG 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

References:

[1] Adams, G. R., &Schvaneveldt, J. D. (1991). Understanding Research Methods, 2e, Longman Publishing Group.
[2] Akhtaruddin, M., Hossain, M. A., Hossain, M., & Yao, L. (2009). Corporate Governance and voluntary disclosure in corporate annual reports of Malaysian listed firms. Journal of Applied Management Accounting Research, 7(1), 1-19.
[3] Aluchna, M. (2009). Does good Corporate Governance matter? Best practice in Poland. Management Research News, 32(2), 185-198.
[4] Beltratti, A., &Stulz, R. M. (2012). The credit crisis around the globe: Why did some banks perform better? Journal of Financial Economics, 105(1), 1-17.
[5] Bhagat, S., & Black, B. S. (2002). The non-correlation between board independence and long-term firm performance. Journal of Corporation Law, 27, 231-273.
[6] Bhattacherjee, A. (2012). Social science research: principles, methods, and practices (retrieved from http://scholarcommons.usf.edu/cgi/viewcontent.cgi?article=1002&context=oa_textbooks)
[7] Brown, L. D., &Caylor, M. L. (2004). Corporate Governance study: the correlation between Corporate Governance and company performance. Corporate Governance Study, Institutional Shareholder Services.
[8] Burns, N., & Grove, S. K. (2010). Understanding nursing research: Building an evidence-based practice. Elsevier Health Sciences.
[9] Central Bank of Kenya (CBK). 2011. Bank Supervision Annual Report 2010, Accessed from www.cbk.co.ke.
[10] Central Bank of Kenya (CBK). 2012. Bank Supervision Annual Report 2011, Accessed from www.cbk.co.ke.
[11] Central Bank of Kenya (CBK). 2013. Bank Supervision Annual Report 2012, Accessed from www.cbk.co.ke.
[12] Central Bank of Kenya (CBK). 2014. Bank Supervision Annual Report 2013, Accessed from www.cbk.co.ke.
[13] Central Bank of Kenya (CBK). 2015. Bank Supervision Annual Report 2014, Accessed from www.cbk.co.ke.
[14] Chantapong, S. (2005). Comparative study of domestic and foreign bank performance in Thailand: The regression analysis. Economic Change and Restructuring, 38(1), 63-83.
[15] Cooper, R.D & Schindler P. (2003). Business Research Methods, Tata McGraw-Hill Publishing Company, 8th Edition.
[16] Cornell, B., & Shapiro, A. C. (1987). Corporate stakeholders and corporate finance. Financial Management, 5-14.
[17] Cyert, R. M., & March, J. G. (1963). A behavioural theory of the firm. Englewood Cliffs, NJ, 2.
[18] Davis, J. H., Schoorman, F. D., & Donaldson, L. (1997). Toward a stewardship theory of management. Academy of Management review, 22(1), 20-47.
[19] Donaldson, L. (1990). The ethereal hand: Organizational economics and management theory. Academy of Management Review, 15(3), 369-381.
[20] Donaldson, L., & Davis, J. H. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of Management, 16(1), 49-64.
[21] Erkens, D. H., Hung, M., & Matos, P., (2012).Corporate Governance in the 2007–2008 Financial crisis: Evidence from financial institutions worldwide. Journal of Corporate Finance, 8(2), 389-411.
[22] Fosberg, R. H. (1989). Outside directors and managerial monitoring. Akron Business and Economic Review, 20(2), 24.
[23] Heracleous, L. (2001). What is the impact of Corporate Governance on organizational performance? Corporate Governance: An International Review, 9(3), 165-173.
[24] Jorion, P. (2001). Financial Risk Manager Handbook 2001-2002 (Vol. 96). Wiley.
[25] Kabir, M. A., &Dey, S. (2012). Performance Analysis through CAMEL Rating: A Comparative Study of Selected Private Commercial Banks in Bangladesh. Journal of Politics & Governance, 1(2/3), 16-25.
[26] Kaplan, R. S., & Norton, D. P. (1996). The balanced scorecard: Translating strategy into action. Harvard Business Press.
[27] Klein, P., Shapiro, D., & Young, J. (2005). Corporate Governance, family ownership and firm value: the Canadian evidence. Corporate Governance: An International Review, 13(6), 769-784.
[28] Macey, J. R., &O'hara, M. (2003). The Corporate Governance of banks. Economic Policy Review, 9(1).
[29] Mang'unyi, E. E. (2011). Ownership Structure and Corporate Governance and Its Effects on Performance: A Case of Selected Banks in Kenya. International Journal of Business Administration, 2(3), 2.
[30] Nambiro, C. A. (2007). Relationship between levels of Implementation of CMA Guidelines on Corporate Governance and Profitability of Companies Listed at the Nairobi Stock Exchange (Doctoral dissertation, University of Nairobi).
[31] Naushad, M., & Malik, S. A. (2015). Corporate Governance and Bank Performance: A Study of Selected Banks in GCC Region. Asian Social Science, 11(9), p226.
[32] Ndung‟u, A. W. (2013). Effect of Financial Risk Management on Financial Performance of Oil Companies in Kenya (Doctoral dissertation, University of Nairobi).
[33] Ongore, V. O., &Kusa, G. B. (2013). Determinants of Financial Performance of Commercial Banks in Kenya. International Journal of Economics and Financial Issues, 3(1), 237-252.
[34] Prowse, S., (1997), Corporate control in commercial banks, Journal of Financial Research, 20(4), 509-27.
[35] Rechner, P. L., & Dalton, D. R. (1991). CEO duality and organizational performance: A longitudinal analysis. Strategic Management Journal, 12(2), 155-160.
[36] Reddy, S. K. (2012). Relative Performance of commercial banks in India using CAMEL approach. International Journal of Multidisciplinary Research, 2(3), 38-58.
[37] Robson, C., &McCartan, K. (2016). Real world research. John Wiley & Sons.
[38] Rogers, M. (2006). Corporate Governance and Financial Performance of selected commercial banks in Uganda. Makerere University Business School, Faculty of Commerce. East Africa: Kampala Uganda.
[39] Rosenstein, S., & Wyatt, J. G. (1990). Outside directors, board independence, and shareholder wealth. Journal of Financial Economics, 26(2), 175-191.
[40] Ross, S. A. (1973). “The Economic Theory of Agency: The Principal‟s Problem,” American Economic Review, 63(2), 134-139
[41] Saunders, M., Lewis, P., &Thornhill, A. (2009). Research methods for business students, 5th Ed. Pearson Education India.
[42] Sekaran, U. (2006). Research methods for business: A skill building approach. John Wiley & Sons.
[43] Shapiro, S.S. and Wilk, M.B. (1965). An Analysis of Variance Test for Normality (Complete Samples). Biometrika, 52, (3/4), 591-611.
[44] Siems, T. F., & Barr, R. S. (1998). Benchmarking the productive efficiency of US banks. Financial Industry Studies, 11-24.
[45] Simerly, R. L., & Li, M. (2000). Environmental dynamism, capital structure and performance: a theoretical integration and an empirical test. Strategic Management Journal, 21(1), 31-49.
[46] Smith Jr, C. W. (1995). Corporate Risk Management: theory and practice. The Journal of Derivatives, 2(4), 21-30.
[47] Tandelilin, E., Kaaro, H., &Mahadwartha, P. A. (2007). Corporate Governance, Risk Management and bank performance: Does type of ownership matter. EADN individual research grant project, (34).
[48] Trochim, W. M. (2005). Research methods: The concise knowledge base. Atomic Dog Publishing.
[49] Williamson, O. E. (1996). The mechanisms of governance. Oxford University Press.
[50] Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40(2), 185-211.
[51] Zikmund, W. G., Babin, B. J., Carr, J. C., & Griffin, M. (2013). Business research methods. Cengage Learning.