Nexus between Corporate Governance and Financial Performance of Listed Commercial Banks at the Nairobi Securities Exchange

Abstract

The study sought to examine the effect of Corporate Governance (CG) on the financial performance of listed commercial banks in Kenya. The research was based on descriptive research design with the target population being all the 11 commercial banks that have offered their shares at the NSE. The per annum panel data was sourced from end-year statements of banks the study focuses on. The secondary data used covered a period of 10 years from 2012 to 2021. The sourced data on data collection sheets was transferred to Excel sheets before being exported to STATA version 15. The study employed the Panel Correlated Standard Errors (PCSE) model. The overall p-value associated with the models used in the study showed that CG variables (board gender diversity, board independence, board experience, board ownership and board size) and bank size had a significant effect on the financial performance (ROA) of listed commercial banks in Kenya. The effect of board size on ROA and ROE was direct but weak. However, board size inversely and weakly affected P/B. Further, board gender diversity inversely affected performance measured by ROA, ROE and P/B. However, only board gender diversity had a strong effect on ROA. Board independence strongly and directly affected financial performance (ROA, ROE and P/B) of the banks studied. Board experience had a direct but weak effect on financial performance. Further, there was a direct and major impact of board ownership on financial performance (ROA and ROE). However, the effect of board ownership on P/B was inverse and statistically significant. Finally, the results revealed a direct impact of bank size on financial performance (ROA and ROE). However, bank size effect on ROE was weak. Further, bank size impact on P/B was inverse and weak.