Corporate Governance and Financial Performance of Kenya Commercial Bank
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Date
2024-11
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Abstract
The banking sector is pivotal in fostering economic growth and development, especially in developing countries like Kenya. Corporate governance played a crucial role in shaping the performance and sustainability of banks and was significant in mitigating risks and fostering transparency and accountability. However, there was a substantial gap in the empirical understanding of the relationship between corporate governance and the performance of banks in Kenya, making this study imperative. Kenya Commercial Bank(KCB), one of the region's largest and most diversified banks, served as an appropriate representative for examining this dynamic. The primary objective of this study was to investigate the effect of corporate governance on the performance of the banking sector in Kenya, focusing specifically on Kenya Commercial Bank. The study sought to understand how different elements of corporate governance affected the operational efficiency, financial stability, and overall performance of KCB. The independent variable was corporate governance, measured by regulatory compliance, and disclosure practices. The dependent variable was the performance of KCB. The study utilized a descriptive research design and employed primary data collected through structured questionnaires administered to senior, middle, and junior-level managers at KCB Bank. The collected data was analyzed using descriptive, correlational and multiple linear regression method to establish relationships and trends between corporate governance and the performance of KCB. Regression results revealed that board composition, regulatory compliance, and disclosure practices together account for 93.7% of the variation in the performance ofKCB. The explanatory power of the model was statistically significant as the p-value was0.000. Further, the results revealed that board composition (β = 0.381, p < 0.000); regulatory compliance (β = 0.354, p < 0.000); and disclosure practices (β = 0.206, p =0.017) had a positive and significant effect on the financial performance of KCB. The study concludes that a well-balanced board enhances decision-making, proactive regulatory compliance strengthens governance structures, and transparent disclosures foster investor confidence, all contributing to improved financial outcomes. Recommendations include enhancing board diversity, adopting proactive regulatory compliance measures, prioritizing transparent disclosure practices, implementing robust risk management frameworks, and fostering a culture of continuous improvement to sustain KCB’s financial performance amidst governance challenges. The findings of this study provided valuable insights into the role of corporate governance in enhancing the performance of banks in Kenya and potentially aided in the development of policies and strategies to strengthen corporate governance frameworks in the Kenyan banking sector. This, in turn, could lead to increased investor confidence, financial stability, and sustained growth in the sector.