Firm Characteristics and Financial Performance of Quoted Commercial Banks in Kenya

Abstract

The role of commercial banks in economic growth and development, income generation and job creation is crucial especially in developing countries. With the increasing trend of sudden corporate failures in both global and local context, shareholders and management are increasingly becoming more concerned with the factors that affect financial performance of firms. The study, therefore, sought to determine the effects of firm characteristics: the number of years in operation of the firm, the market share of the firm and board characteristics, on the financial performance of quoted commercial banks in Kenya. This study adopted the descriptive research design and was a survey of the eleven commercial banks listed on the Nairobi Stock exchange. The study used secondary data obtained from the companies audited financial statements and data recorded on a secondary data collection sheet and analyzed using the panel regression analysis. The study found out that an increase in market share and board characteristics will lead to an increase in financial performance of the quoted commercial banks in Kenya. Similarly, an increase in number of years in operation will lead to a decrease in financial performance of quoted commercial banks in Kenya. This implies that the banks improve their financial performance by increasing its market share and focusing on the board characteristics. The study recommends that managers need to analyze financial performance over time and establish ideal asset size, board characteristics, market share and develop relevant strategies to maximize productivity and improve performance of the quoted commercial banks in Kenya. Further studies should be done to investigate the effects of firm characteristics on the remaining commercial banks not quoted at the NSE and other sectors of the economy. Researchers, academicians and students should carry out studies to investigate possible firm characteristics and factors that affect financial performance of commercial banks in Kenya.