Corporate Governance and Financial Performance of Commercial Banks in Kenya: A Critical Review of Literature

Author(s)

Marcus S. Lungatso , Dr. Otuya Willis ,

Download Full PDF Pages: 01-06 | Views: 611 | Downloads: 171 | DOI: 10.5281/zenodo.3596742

Volume 8 - December 2019 (12)

Abstract

the purpose of this paper is to critically review the existing literature on the relationship between corporate governance and the financial performance of commercial banks in Kenya. The corporate governance attributes of board composition, board independence, board gender and audit committee independence were used as independent variables. Financial performance was measured using Return on Assets (ROA), Return on Equity (ROE), Profitability Margin (PM) and Tobin’s Q. The studies reviewed both theoretical and empirical literature. The studies were based on three theories; Agency Theory, Stewardship Theory and Resource Dependency Theory. The studies revealed that board size, board independence and audit committee independence have a positive and significant relationship with the financial performance of commercial banks in Kenya. However, board composition and board gender have a negative relationship with financial performance. The studies concluded that corporate governance structures improve the financial performance of commercial banks in Kenya. The studies recommend that the management of the commercial bank in Kenya should implement strong corporate governance structures in order to achieve good financial performance.

Keywords

Corporate Governance, Financial Performance, Commercial Banks

References

i.        Sheridan, T & Kendall, N 1992, Corporate governance: an action plan for profitability and business success, Pitman Publishing, London.

ii.      Kaur, G & Mishra, R 2010, ‘Corporate governance failure in India: A study of academicians perception’, The IUP Journal of Corporate Governance, vol. 9, no. 1, pp. 99–112.

iii.    Mallin, CA 2010, Corporate governance, 3thedn, Oxford University Press, New York.

iv.     Solomon, J 2010, Corporate governance and accountability, 3thedn, Wiley, Hoboken, NJ.

v.       Berle, S. S., & Means, G.C. (1932).The Modern Corporation and Private Property. New York: Macmillan. Bhagat, S. & Black, B. (2002), The Non-Correlation between Board Independence and Long-term Firm Performance. Journal of Corporation Law, 27 (2), 231-274.

vi.     Cadbury, (1992).Report of the Committee on the Financial Aspect of Corporate Governance. Maher, M &Andersson, T 2000, ‘Corporate governance: effects on firm performance and economic growth’, Available at SSRN 218490.

vii.   Sheikh, S &Chatterjee, SK 1995, Perspectives on corporate governance, in S Sheikh & E Rees (eds.), Corporate governance and corporate control, Cavendish, London, pp. 1-56.

viii. Olayiwola, WK 2010, ‘Practice and standard of corporate governance in the Nigerian banking industry’, International Journal of Economics and Finance, vol. 2, no. 4, pp. 178-189.

ix.     Elewechi, R. M. O. (2007). Corporate Governance in Nigeria: The Status Quo. Corporate Governance: An International Review 15(2), 173-193.

x.       Anandarajah, K 2004, Corporate Governance in Asia in a Post-Enron World’ in The Practitioner’s Guide to Corporate Governance in Asia, ISI Publications Limited, Hong Kong.

xi.     Iskander, MR&Chamlou, N 2000, Corporate Governance: A Framework for Implementation, World Bank Group, Washington. D.C., U.S.A.

xii.   Sternberg, E 2004, Corporate governance: accountability in the marketplace, EconLit, Available at ISBN 9780255365420.

xiii. Donaldson, T & Preston, LE 1995, ‘The stakeholder theory of the corporation: Concepts, evidence, and implications’, Academy of management Review, pp. 65–91.

xiv. OECD 2004, OECD principles of corporate governance, OECD, Paris.

xv.   Cadbury, A 1999, ‘What are the trends in corporate governance? How will they impact your company?’,Long Range Planning, vol. 32, pp. 12–19.

xvi. King Committee on Corporate Governance and Institute of Directors 2002, King Report on Corporate Governance for South Africa, 2002, Institute of Directors in Southern Africa.

xvii.           Shleifer, A &Vishny, RW 1997, ‘A survey of corporate governance’, Journal of Finance, vol. 52, no. 2, pp. 737–783.

xviii.         Clarkson, ME 1995, ‘A stakeholder framework for analyzing and evaluating corporate social performance’, Academy of management Review, vol. 20, no. 1, pp. 92–117.

xix. Sundaram, AK &Inkpen, AC 2004, ‘Stakeholder theory and “the corporate objective revisited”: a reply’, Organization Science, vol. 15, no. 3, pp. 370–371.

xx.   Baker, HK & Anderson, R 2010, An Overview of Corporate Governance, in Corporate Governance: A Synthesis of Theory, Research, and Practice (eds H. K. Baker and R. Anderson), John Wiley & Sons, Inc., Hoboken, NJ, USA.

xxi. Rezaee, Z 2009, Corporate governance and ethics, John Wiley & Sons, Hoboken, NJ.

xxii.           Friedman, M 2008, The social responsibility of business is to increase its profits. West, A 2006, ‘Theorising South Africa’s corporate governance’, Journal of Business Ethics, vol. 68, no. 4, pp. 433–448.

xxiii.         Green, R.M. (1993), “Shareholders as stakeholders: changing metaphors of corporate governance”, Washington and Lee Law Review, Vol. 50, p. 1409

xxiv.          Freeman, R.E. and Gilbert, D.R. (1988), Corporate Strategy and the Search for Ethics, No. 1, Prentice Hall, Englewood Cliffs, NJ.

xxv.            Kochan, T.A. and Rubinstein, S.A. (2000), “Toward a stakeholder theory of the firm: the Saturn partnership”, Organization Science, Vol. 11 No. 4, pp. 367-386.

xxvi.          Jensen, M.C. and Meckling, W.H. (1976), “Theory of the firm: managerial behavior, agency costs and ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 305-360.

xxvii.        Lang, L., Stulz, R. (1994). Tobin‟s Q, Corporate Diversification, and Firm Performance.Journal of Political Economy, 102.

xxviii.      Dechow, P. M. & Sloan, R.G. (1991). Executive Incentives and the Horizon Problem.Journal of Accounting and Economics, 14.

Cite this Article: