Corporate Governance and Performance of Financial Institutions in Kenya

Abstract

The introduction of corporate governance code by the central bank of Kenya in early 2000, corporate governance has attracted an incomparable attention of researchers because of expanding financial troubles financial firms are experiencing everywhere in the globe. Recent scandals regarding the moral deficiency of some financial institutions have stimulated public sensitivity towards cooperative governance issues of these firms. This study's main objective is based on empirical analysis which seeks to establish the effects of corporate governance on firm's performance within the Kenyan financial sector, including the characteristics of the management body, i.e. Board size, ownership concentration, auditor's reputation, independent directors, CEO's duality and annual number of board meetings, firm's size and leverage i.e. financial risk management. The researcher did a rigorous desktop review of secondary information on ‘cooperate governance' and ‘performance' from 2014 to date in the online library of various documents, publications and reports including journals and magazines.  Based on the previous studies reviewed, the researcher appreciated that corporate governance is the key to the global integrity especially for financial institutions whose existence is wholly dependent on trust and integrity. Different scholars have advocated for different measurers to corporate governance on the measure of firms' performance and the common identified are board size, ownership concentration and auditor's reputation have a positive and significant impact on firms' return on assets (ROA), whereas the percentage of independent directors and the annual number of board meetings have negative and significant impact on firms' return on equity (ROE). CEO duality is found to not be an important determinant factor of firms' performance, as the results suggest that it shows insignificant effect on ROA and ROE.  Firm's size and leverage are found to have negative and insignificant relationship with firms' performance. The study, recommended among others that Financial Institutions should increase their board size but within the maximum limit set by the code of corporate governance and ensure that all regulations provided by Central Bank are fully complied with.