Effects of Corporate Governance On The Performance of Commercial Banks, Kenya
Effects of Corporate Governance On The Performance of Commercial Banks, Kenya
Effects of Corporate Governance On The Performance of Commercial Banks, Kenya
BY
D61/84619/2016
2018
DECLARATION
This research project is my original work and has not been presented for the award of
degree in any other university or institution for any other purpose.
Signature.................................................. Date......................................
Mariam Hamid Afif
D61/84619/2016
Supervisor
This research project has been submitted for examination with my approval as University
Supervisor.
Signature.................................................. Date......................................
DEDICATION............................................................................................................................... iv
LIST OF ABBREVIATION.......................................................................................................... v
REFERENCES ............................................................................................................................. 34
APPENDICES .............................................................................................................................. 40
APPENDIX I: Questionnaire .................................................................................... 40
APPENDIX II: List of Commercial Banks in Kenya .................................................43
APPENDIX III: Research Data ................................................................................ 45
LIST OF ABBREVIATION
CBK Central Bank of Kenya
CEO Chief Executive Officer
CMA Capital Market Authority
KBA Kenya Banker Association
v
LIST OF FIGURES
Figure 2.1 ……………………………………………………………………………18
vi
LIST OF TABLES
Table 3.5.1 Operationalization of Variables………………………………………..20
Table 4.1 Response Rate....................................................................…....................22
Table 4.2 Descriptive statistics............................................................…...................23
Table 4.3 Tests of Normality…………………..……………………………………23
Table 4.4 Tests of Multicollinearity............................................………...................24
Table 4.5 Tests of Autocorrelation…………………….............................................25
Table 4.6 Correlation Matrix….……………………..………………………………26
Table 4.7 Regression Co-efficient……….…………..………………………………27
Table 4.8 Model Summary...........…...........................................................................28
Table 4.9 Analysis of Variance (ANOVA)………………………………………….29
vii
ABSTRACT
The aim of the study was to determine the effect of corporate governance on performance
of Kenya commercial banks. Descriptive research design was used. A census targeting
Kenyan commercial bank for the year 2017 was conducted. The study used primary and
secondary data acquired from questionnaire and Central bank of Kenya annual bank
supervision report and respective commercial banks’ websites. Questionnaires were used
to measure three balanced scorecard perspectives; internal and customer business
perspective & innovation and learning. Also, corporate governance measures used in the
questionnaire include size of the board, board meetings frequency & board independence.
Bank size was used as the control variable. Statistical Package for Social Sciences (SPSS)
version 20 was used to analyze the collected data. Descriptive statistics was used to
describe the variables using mean and standard deviation. Regression analysis was used
to establish the effect of corporate governance on performance on Kenyan commercial
banks. Regression model showed that size of the board and board’s independence had
positive effect on performance and not statistically significant (β= 0.337 and 0.010
respectively, p-value ˃ 0.05). Board meetings frequency had a negative impact on
performance and not statistically significant (β= -0.301, p-value ˃ 0.05). The bank size
had a positive impact on performance and statistically significant (β= 0.134, p-value˂
0.05). Correlation analysis showed that size of the board and bank size had a positive
correlation and was statistically significant (β= 0.436, 0.46 respectively, p-value ˂ 0.05).
Independence of board had a positive correlation coefficient and not statistically
significant (β= 0.051 and p-value ˃ 0.05). Board meetings frequency had a negative
correlation coefficient and was not statistically significant (β= -0.094, p-value˃ 0.05).
The results of the analysis of variance (ANOVA) had F ratio of 3.481 with a level of
significance of 0.022, this shows that the effect of size of the board, board meetings
frequency, board independence and bank size was statistically significant. The adjusted
coefficient of determination R2 was used to evaluate the explanatory power of the
independent variables. Adjusted coefficient of determination for the regression was
25.5% indicating that the independent variable explained only 25.5% of the variation in
the dependent variable. The study concluded that the effect between corporate
governance and performance was positive. The limitation of this study was that it was
carried on only commercial banks in Kenya neglecting other financial institutions. This
study recommends that banks should monitor frequency of board meetings because it
appears to affect the performance of the banks negatively. Also, to broaden the board
size, promote bank size and increase number of outside directors.
viii
ix
CHAPTER ONE: INTRODUCTION
Theories that this study is anchored on are, Agency theory (Jensen and Meckling, 1976),
Stakeholder theory (Freeman, 1984) and Stewardship theory (Donaldson, 1991; Davis
1993). Agency theory is established on the interest’s conflict among several contracting
parties in a company, like, debtors, stakeholders and managers. Stakeholder theory was
first put forward by Freeman (1984). A person orgroup of persons who can impact of be
impacted by achieving organizational goals is known as a stakeholder (Freeman, 1984).
In narrow sense, this means that firms are responsible solely to the stakeholders who can
influence the firm. In broader sense, it means that it’s the organization’s duty account for
not only those who are influenced by the firm but also all affected parties whose life
experiences may be influenced by the company’s actions. On the contrary, Stewardship
theory address underlying assumption in theory of agency, which is the existence of
tension between the principal’s risk propensity and their agents. Since agents aim their
activities upon reducing their personal risk at the expense of their principals. Thus
according to Donaldson and Davis (1994), in stewardship theory, managers constantly
operate to achieve increased standard of shareholders and corporate returns hence are
good stewards.
1
The Banking Sector in Kenya is comprised of the regulated; non-bank financial
institutions, commercial banks and forex bureaus and the regulatory authority which is
the Central Bank of Kenya (CBK, 2014). Presence of increase in growth of the banking
sector in Kenya although they still have to deal with several setbacks such as placement
under statutory management or collapse of various banks. Majority of the banks that had
subsided may have been due to embezzlement of bank assets or mismanagement. Banks
which had been affected were Imperial bank, Dubai bank and Chase Bank. Banks have to
deal with issues of fraud, mismanagement, insider lending, weak internal controls and
conflict of interest, non-performing loans and weaknesses in regulatory and supervisory
system. All these concerns happen due to bad corporate governance thus this proposal
attempt to describe reality of the link between performance and corporate governance of
banks (Gathaiya, 2017).
Corporate governance has a number of measures which include: the size of board; with
an increase in number of director leads to decreases in performance (Sulaiman et al,
2012). Another measure is CEO duality where companies experience a dilemma on
whether CEO & board of director’s chairman must operate on separate role or not.
Hence, double role has a negative influence on monitoring the decisions of board of
2
directors. Other measures include firm age, firm size, board committees and board
composition (Syriopoulos et al, 2012).
Kaplan and Norton (1992) initiated the balanced scorecard to tackle limitations and
problems of depending on financial measures only. Financial and nonfinancial measures
are combined in order to battle most systems of accounting measurement and exploitation
by senior executives (Norreklit, Jacobsen and Mitchell, 2008). The technique was
intended to assess corporate performance by preventing over-dependence on entirely
financial measurement systems. Four perspectives are included in the model: innovation
perspectives, internal business processes, financial perspective and customer perspective.
Innovation perspective defines the core competencies and skills, the corporate culture and
technologies required to support a firm’s strategy. Internal business perspective
apprehend critical firm actions which are classified into four-high level processes which
include: deepening relationships with existing customers hence increase customer value,
building the permit by creating modern products and services and by penetrating new
customer segments and markets, enhancing management of supply chain, quality, cost,
capacity management, the internal processes cycle time and utilization of asset hence
achieve operational excellence. The linking of financial objectives to corporate strategy is
motivated by the financial perspective. Customer perspective describes the differentiation
3
of the firm from its competitors hence to enhance attraction and retention of customers
thus deepen its relationship with the targeted markets. The model as a measure of
performance and a planning tool, has been recognized and accepted.
An increase in growth in the banking industry in Kenya has been seen due to awareness
of the importance of investments among people. However, it is remarkable that some
banks have either been placed under statutory management or have collapsed. These
5
banks include: Imperial Bank, Dubai Bank, Habib Bank and Chase Bank. The Centre
for Corporate Governance (2004), enumerated some of the reasons to this undesirable
phenomenon; poor risk management strategies, lack of internal control, conflict of
interest, insider lending, weak corporate governance practices and weakness in
supervisory and regulatory systems. Another corporate governance matter which caused
the banks to collapse in Kenya was the bank’s ownership type and structure (Surya,
2005). Hence, the majority shareholder has more control if ownership is concentrated in
some families or business group thus leading to difference in treatment between
shareholders, harming the minority. Corporate governance has several challenges across
the globe let alone in Kenya and has affected firm performance significantly.
Several studies have been done at local and global level on corporate governance and
performance hence findings are contradictory or inconclusive. A negative link is present
between performance and corporate governance of firm (Love & Rachinsky, 2007).
Ujunwa (2012) described that diversity, board size and duality of CEO was negative
correlated to firm performance. According to the Kenyan studies, Honghui (2017) found
that board diversity, number of committees and number of meetings affect performance
positively. Nyarige (2012) described the relationship between market performance of
banks and board independence to be positive whereas link between market performance
and board size of listed commercial banks to be negative. Mangu’nyi (2011) found no
difference significantly between ownership structures, corporate governance and bank’s
financial performance. Research done on the effect of corporate governance and Kenya’s
commercial bank’s performance using balanced scorecard is little. Hence, the researcher
found it necessary to study the effects of corporate governance on Kenya’s commercial
bank’s performance to breach existing gap. It is this knowledge gap that the study
responded to the question: what is the effect of corporate governance on the performance
of commercial banks in Kenya?
6
1.4 Value of the Study
This study adds on already available studies and theories previously conducted by other
researchers. Thus, providing more evidence on the impact of corporate governance on the
commercial banks’ performance. These evidence provided will help on understanding
more corporate governance. Also, the use of balanced score card in this study give a new
look to this relationship. The study will also help future researcher in conducting new
researches on either the same research or focus on other different variables.
In practice, the study will help commercial banks in offering them guidance on how to
manage their corporate governance so that not to impact the financial performance of
their banks. On such way, commercial banks will be capable of increasing their profits
while reducing the prospected risks and on the other hand satisfy their employees and
customers.
The results acquired from this research will help policy makers and stakeholders to take
decisions that will benefit commercial banks. Thus, determining the scheme in
benefitting and disciplining banks that do not will or intend to enhance corporate
governance. On the other hand, the stakeholders can monitor how the banks are run and
the risks they undertake.
7
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
The chapter examined several relevant theories, empirical review and summary of the
literature.
Large boards are viewed to negatively impact performance since they are less effective
and less easy for a CEO to influence and they interfere with group dynamics and
decisions (Jensen, 1983). Nonetheless agency theory advocated for larger boards as it
viewed the existence of directors who are outside directors as a crucial component in
safeguarding interests of the shareholders by the mangers. The common assumption is
that executive directors will be able to be supervised by the outside directors since they
have expertise and are self-reliant (Fama & Jensen, 1983). Reduction of the influence of
the board’s CEO and protecting shareholders’ interest is allowed by larger boards thus
effective monitoring of the firm (Singh and Harianto, 1989). The independence of a
board is fundamental to the shareholders’ best interest; therefore, agency theory
advocated need to have non-executive directors as they can best represent the shareholder
interests (Carter, Simkins and Simpson, 2003).
The theory further models and identifies the organization’s stakeholder groups. He
recommends and describes the best ways in which the organization’s management can
9
give regard to those groups’ interests. Thus, larger group of individuals are accounted for
rather than a shareholder in the stakeholder theory (Mallin, 2013). This means the
management of the organization should not only focus on the shareholder’s interest but
involve all those are affected by their actions; this also applies in the decision making.
The financial institution provides long and short term credit facilities and have the aim of
collecting the interest and also the principal, the government enables the business
environment to function and also anticipate a reward in terms of taxation, employees
provide their skills to the organization and anticipate salaries or other benefits. Hence, the
importance of stakeholder theory is that there is a network of relationship among
managers in the firm which is critical rather than the managers’, employees’ and owner
relation as in the view of agency theory (Freeman, 1984).
Stakeholder theory recommended for well diversifies and large corporate board sizes
facilitate and accommodate the alignment of each constituent’s interest mainly ones
which generate significance to the firm thus enhancement of board effectiveness and
performance (Clarkson, 1995). On the contrary, Donaldson and Muth, (1998) emphasize
on the necessity of smaller board sizes. This is in line with organizational behaviorists’
argument that bonding and unity motivates increase in performance and is promoted by
small teams.
10
The theory’s relevance to this study is that corporate governance is about safeguarding
the stakeholders’ interest, whereas this theory believes that managers are willing to
abandon their self-interests in the aim of achieving the principals’ objectives. According
to Van Slyke (2006), this theory locates appreciable merit on objective connection of the
parties associated than on the manager’s self-interest. Wesley (2010) also states that
managers are not driven by personal or individual goals but by the interests of the firm.
This is brought by the believe of the stewards or managers that the pursuit of what is best
for the company is better for their constitutes and them too.
According to stewardship theory, firm assets stewards are the directors of the
organization where they are required to function in the most beneficial way to the
shareholders (Mallin, 2007). Shareholders are protected by the stewards and they also
make profits, satisfy and motivate the company’s success. Stewardship theorist argue that
there is association between majority of inside directors and superior corporate
performance because they make certain that more efficient and effective decision making
and contribute in the maximization of profit (Kiel and Nicholsom, 2003).
11
The corporate governance code in Kenya Boards’ of public listed companies to have
sufficient sizes. The board number should allow the company’s business requirements to
be met. Also, too large board size that would undermine an interactive discussion in
board meetings shouldn’t be considered and board size which is too small where skills
and proficiency inclusions which would enhance the board’s effectiveness (CMA, 2002).
With increase in board meetings, corporate performance also increases thus increase in
annual board meetings and the share price decreases. Lack of time problem faced by the
directors to perform their role thus board meetings aids in enhancement of board’s
effectiveness (Vafeas, 1999).
Board independence is the most arguable matter in corporate governance studies because
of its capability to control top management on decisions and to impact board
deliberations. The inclusion of outside directors is intended to align the firm’s resources
for greater advantage and to strengthen the firm’s ability to safeguard itself against
environmental threats (Oyoga, 2010).
12
2.3.3 Inflation Rates
Increase in inflation rates leads to increase in interest rates on loans hence higher income
to commercial banks. However, the effects of inflation on performance rely if it’s
predicted or unpredicted. If it is predicted to have an increase in inflation rates, then the
influence is positive on the commercial banks financial performance. Whereas, when
increase in inflation rates is not predicted, it results the local borrowers to have
difficulties in cash flow resulting in bank loan agreement termination which will led to
losses for the issuing commercial bank. The longer time the commercial bank takes to
adjust to changes in interest rates when there is a change in inflation rates, the higher the
operating cost of the bank causing difficulties in negotiation of loans and planning
(Swarnapali, 2014).
When there is a high inflation rate, consumers are at a low purchasing power position;
therefore, money is spent on consumption. Money which was to be used for investment
or saving purposes is diverted for consumption hence this condition decreases the cash to
be saved in commercial banks thus reduction in the ability to issue borrowers with loans.
This will affect the bank’s profitability in a negative way. Therefore, inflation rates affect
the profitability of commercial banks (Rasiah, 2010).
13
2.3.5 Bank Size
Bank size is another factor that influences performance of commercial banks. There are
conflicting results on agreeing whether the bank size affects banks’ performance.
Bank size and financial performance had a positive relation and is significant hence as the
bank size is bigger, the raising of capital cost becomes lower thus increase in the
profitability ratio (Godard et al., 2004). Goddard et al. (2004) and Bikker & Hu (2002)
acknowledge the above study and noted that impact on performance is positive when the
banks’ size is high because of the fact that the is a significantly reduction in capital
seeking cost. However, it is vital to consider there is no consensus by the researchers on
whether if the bank size increases through increase in assets it will contribute to
commercial banks through economies of scale s leading to improvement in financial
performance thus this is a matter which needs to be assessed through more studies.
14
Ochieng (2011) studied the relation between performance and corporate governance
practices of Kenyan commercial banks. Inspecting the link between corporate governance
measures and Kenyan commercial bank performance was the objective. Population used
was 45 banks licensed by the Kenyan Central bank in 2010. Both secondary and primary
data was used in data collection. Secondary data comprised of financial reports and
journals among others, whereas primary data was gathered using well-structured
questionnaires. The study established the link between bank performance and corporate
governance to be positive. It concludes that board was required to appoint and select
senior executives. The study recommends that the existing setbacks in the board requires
to be looked into.
Firm Performance
Corporate Governance
Financial Perspective
Size of the Board
Customer Perspective
Frequency of Board
meetings. Internal Business Perspective
Control Variable
Bank Size
16
Figure 2.1 Conceptual Framework
There is little study carried out on effect of corporate governance and performance of
Kenyan commercial banks using balanced scorecard. Consequently, a thorough study
needs to be conducted so as to fill the research gap. There has not been a conclusive study
that has been carried out that advices commercial banks on the ideal corporate
governance measures to have so as to increase their performance. This research would aid
to address some of the concerns that have faced commercial banks.
17
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction
The chapter examined the research design, population target, data collection methods and
data analysis techniques.
Major statistical methods are Regression method and correlation analysis. Interval and
ratio scale are used to measure nearly all the hence logic behind using regression method
thus to test the correlation between two or more variable, it is with no doubt a strong
technique than other statistical methods.
Y= a + b₁ X₁ + b₂ X₂ + b₃ X₃+ b3 X3 + b4 X4 + ε
Where: Y- Bank Performance
a- Constant term
X₁ - Board Size
X3 - Board Independence
X4 - Bank Size
ε – Error term
19
3.5.1 Operationalization of Variables
regression’s significance model. The variability of the overall model of regression was
20
3.5.3 Diagnostic Tests
The study used tests of normality for the regression model by determining the skewness
tests. Homoscedasticity was used to measure the extent of equal variances between
variables value. The study used Breusch Pagan test to test for heteroscedasticity.
Multicollinearity was used to test the existence of linear relationship among independent
variables, the Variance Inflation Factor (VIF) of more than 10 would indicate trouble
with multicollinearity (Oscar, 2007). Autocorrelation was used to test whether the errors
in different observations are correlated, Durbin-Watson test is used where if d-statistic is
more than 0.05,its concluded that the errors in different observations are not correlated
with each other ( Durbin & Watson, 1971).
21
CHAPTER FOUR: DATA ANALYSIS AND INTERPRETATION
4.1 Introduction
The chapter focused in assessment of data gathered and finding discussions.
22
4.4 Descriptive Statistics
The following Table 4.2 depicts descriptive statistics.
As shown in Table 4.2, data was collected from commercial banks for the year 2017
showing 30 respondents that were used in the study for the analysis. Mean of the board
size, board meetings frequency and board independence was 2.0167, 2.2333 and 2.7833
and a standard deviation of 0.5490, 0.5833 and 1.5739 respectively. The average of the
bank size was 17.635 with a standard deviation of 1.618. Average performance was
2.6611 with a standard deviation of 0.5527.
23
Unstandardized
.107 30 .200* .953 30 .202
Residual
The residual follows a normal distribution since the p-value 0.202 was more than the
significance level 0.05.
24
4.5.4 Testing for Heteroscedasticity
The macro syntax by Gwilyn Pryce on Breusch-Pagan and Koenker was run on spss.
Since the p-value 0.5107 was more than the significance level as shown in the model,
there is no problem of heteroscedasticity.
Run MATRIX procedure:
BP&K TESTS
==========
Regression SS
9.0639
Residual SS
73.6180
Total SS
82.6819
R-squared
.1096
25
Table 4.6 Correlation Matrix
Frequenc
Financial y of Board
Performan Board board indepe
ce Size meetings ndence Size
Financial Pearson 1
Performance Correlation
Sig. (1-
tailed)
N 30
Board Size Pearson .436** 1
Correlation
Sig. (1- .016
tailed)
N 30 30
Frequency of Pearson -.094 .284 1
board Correlation
Meetings Sig. (1- 0.622 0.129
tailed)
N 30 30 30
Board Pearson .051 .314 .480 1
Independence Correlation
Sig. (1- .787 0.092 .007
tailed)
N 30 30 30 30
Size Pearson .460 .456** .295 .183 1
Correlation
Sig. (1- .011 .010 .113 .334
tailed)
N 30 30 30 30 30
The variable board size had a positive coefficient of 0.436 and a significance level of
0.016 which explains that the higher the board size the higher the firm performance hence
was statistically significant. Board meetings frequency had a negative coefficient of -
0.094 in relation to performance with a significance level of 0.622; indicating the higher
the board meetings frequency the lower the performance thus was not statistically
significant. The variable board independence in relation to performance had a coefficient
26
of 0.051 with a significance level of 0.787 thus the higher the board independence the
higher the performance and was not statistically significant. The coefficient of ban size in
relation to performance had a coefficient of 0.46 with significance level of 0.011 thus the
higher the bank size the higher the performance and was statistically significant.
As depicted in table 4.7 above, the coefficient of determination (R2) to be 0.358 whereas
the Adjusted R2 was found to be 0.255. The results depict independent variables chosen
had 25.5% variability of the dependent variable. The adjusted R square has been adjusted
for the number of predictors in the model is 0.255 it can provide unbiased estimates.
The study showed the effect of frequency of board meetings on the performance of the
Kenyan commercial bank. Findings showed that board meetings frequency had a weak
negative effect on commercial bank’s performance. It implied that an increase in one unit
of frequency of board meetings led to a decrease of 0.301 units in firm performance.
Consequently, board meetings frequency had a negative influence on commercial bank’s
performance. Too many meetings can be detrimental to the firm as the costs can be
uneconomical thus this supports the findings as per the study of Miniga, (2013).
The study also tested the effect of bank size on Kenyan commercial banks’ performance.
Bank size was used as control variable. The findings depicted that bank size and
performance had a positive effect. It implied that an increase in one unit of the banks’
size led to an increase of 0.134 units in the firm performance thus a positive influence on
the bank’s performance. These findings support the study of Wepukhulu (2016), where
he found that bank size should be positively associated with performance given that
larger bank size can diversify hence led to improved levels of performance.
29
CHAPTER FIVE: SUMMARY, CONCLUSIONS AND
RECOMMENDATIONS
5.1 Introduction
The chapter gives summary, conclusion, recommendation and suggestion for further
research.
The study depicted that bank size and board size had a positive correlation on
performance indicating that the higher the board size the higher the performance and it
was statistically significant. Board independence had a positive correlation on the
performance of commercial bank but was not statistically significant. Frequency of board
meetings on performance of commercial banks was negative showing that the higher the
frequency of board meetings the higher the performance and not statistically significant.
This study showed that the regression model had a constant of 0.262 and board size, bank
size, board independence and board meetings frequency had coefficients of 0..337, 0.134,
0.010 and -0.301 respectively. Board size, independence of board and bank size had a
positive coefficient thus had a positive effect on the performance hence the higher the
board independence, board size and bank size the higher the performance. Board
meetings frequency and performance had a negative relation thus the higher the board
30
meetings frequency, the lower the performance. Board size, board meetings frequency
and board independence had a significance level of 0.087, 0.104, 0.886 and thus not
statistically significant. Bank size had a significance level of 0.043 thus was statistically
significant.
The adjusted coefficient of determination R2 was found to be 0.255. Thus, board size,
board meetings frequency, board independence and bank size explained 25.5% of the
variation in commercial bank’s performance while the other variation was explained by
other factors. Analysis of variance showed that the F ratio for the regression was found to
be 3.481 and had a significance probability of 0.022. This model was hence enough to
explain how board independence, board size and frequency of board meetings influences
Kenya’s commercial bank’s performance.
The study also found that the bank size had a positive effect on bank’s performance thus
effect of the bank size on the performance of Kenyan commercial banks showed that size
and performance had positive relation hence an increase in bank size will increase the
bank performance.
The bank size also appears to affect performance positively. The study recommends that
banks to promote bank size as this translates to improved bank performance. Therefore,
bank size had a strong effect on performance of Kenya commercial banks hence should
maintain or promote the size of the bank so as to have higher performance
The data results may also not be applicable to other financial firms as the focus in this
study was on banks and this is because of the differences that are found between
commercial banks and other financial firms. While it can offer important insights to other
financial institutions, such conclusions should be approached with care given the
variations in the way banks operate and the way other financial institutions operate. To
eradicate this limitation, it may be significant to carry this study on other financial
companies.
This study offers appropriate insight on corporate governance effects on the performance
of the commercial banks which are conventional banks; future research could be carried
on corporate governance effects on performance of financial institutions. Example of
other financial institutions which can be studied include microfinance banks, forex
bureau, insurance companies.
33
REFERENCES
Adam, R and Mehran (2003). Is Corporate Governance Different for Bank Holding
Companies. Federal Reserve Bank of New York Economic Policy Review, 9, 123-
141
Berle, A. A., & Means, G. C. (1932). The Modern Corporation and private property. New
York: Macmillan
Bikker, J.A. & Hu, H. (2002). Cyclical patterns in profits, provisioning and lending of
banks and procyclicality of the new Basel capital requirements. BNL Quarterly
Review, 221, 143-175
Carter, D., Simkins,B. &Simpson, W. (2003). Corporate governance, board Diversity and
firm value. The Financial Review, 38(1), 33-53
Central Bank of Kenya (2014). Bank Supervision Annual Report 2010. Central Bank of
Kenya, Nairobi.
Central Bank of Kenya (2016). Bank Supervision Annual Report 2010. Central Bank of
Kenya, Nairobi
34
Donaldson, L., & Muth, M. (1998).Stewardship theory and board structure: A contingency
approach. Corporate Governance - An International Review, 6(1), 5-28.
Fama, E. and Jensen, M. 1983. Separation of Ownership and Control. Journal of Law and
Economics, 26, 301–325.
Gathaiyah R. N (2017). Analysis of issues Affecting Colapsed Banks in Kenya from year
2015 to 2016. Jomo Kenyatta University of Agriculture and Technology.
Kiel, G & Nicholson, G (2003). Board Composition and Corporate Performance: How the
Australian Experience Informs Contrasting Theories of Corporate Governance.
Corporate Governance: An International Review, 11(3), 189-205.
Goddard, J., Molyneux, P., and Wilson, J.O.C. (2004). The profitability of European
banks: a cross-sectional and dynamic panel analysis. The Manchester School.
35
Jensen, M. (1983). The modern industrial revolution, exit and the failure of internal
control systems. Journal of Finance, 48, 831–880.
Kaplan, R.S & Norton, D.P. (1992). The Balanced Scorecard: Measures that Drive
Performance. Harvard Business Review, (January- February), 71-79
Mallin, C.A. (2013). Corporate Governance, 4th edition. United Kingdom: Oxford
University Press.
Mang’unyi, E. (2011). Ownership Structure and Corporate Governance and Its Effects on
Performance: A Case of Selected Banks in Kenya. International Journal of
Business Administration, 2(3), 18.
McColgan, P. (2001). Agency theory and corporate governance: a review of the literature
from a UK perspective. Department of Accounting & Finance, University of
Strathclyde.
36
Miniga, J. O. (2013). Relationship between Corporate Governance Practices and
Financial Performance of Regulatory State Corporations in Kenya. MBA project,
University of Nairobi.
Miringu (2011).Analysis of the Effect of Corporate Governance on Performance of
Commercial State Corporations in Kenya.
Mulyadi, M. S., Anwar, Y., and Ikbal, M. (2012). The importance of corporate
governance in public sector. Global Business and Economics Research Journal, 1
(1), 25-31
Nam S. and Nam C. (2002). Corporate Governance in Asia: Recent Evidence from
Indonesia, Republic of Korea, Thailand and Malaysia, Asian Development Bank
Institute. Tokyo.
Norkelit H., M. Jacobsen & F. Mitchell (2008). Pitfalls in using the balanced scorecard.
Journal of corporate accounting and finance. 19(6), 65-68.
Oscar, T. (2007).Panel data analysis fixed and random effects using Stata (V. 4.2).
Princeton University: Data and Statistical Services.
Pearce, A., and Zahra, S. (1992). Board Composition from a Strategic Contingency
Perspective. Journal of Management Studies, 29(4), 411-438
Sanda, A.U., Mukaila, A.S., Garba, T. (2003). Corporate governance mechanisms and
firm financial performance in Nigeria: final report. Paper presented to the
Biannual Research Workshop of the AERC. Nairobi, Kenya, 24-29 May.
38
Sulaiman, M., Abd Majid, N., Ariffin, N. M., (2012). Corporate governance of Islamic
financial institutions in Malaysia. Paper presented at the Proceedings of the 8th
International Conference on Islamic Economics and Finance. Doha, Qatar.
Van Slyke, M., (2006). Agents or Stewards: Using Theory to Understand the Government
Nonprofit Social Service Contracting Relationship. Journal of Public
Administration Research and Theory, 17 (2), 157–187
39
APPENDICES
APPENDIX I: Questionnaire
The questionnaire will be used to collect information on corporate governance and
balanced scorecard as a measure of performance in listed commercial banks. Kindly fill
in the appropriate responses to the best of your knowledge and sincerity.
2. Branches Available
Less than 20 41 – 60 More than 80
21 – 40 61 - 80
2. Customer perspective
a.
2015 2016 2017
Number of customers
40
…………………………………………………………………..
Less than 5 5 to 10 11 to 15
16 to 20 More than 20
2. What is the mean meeting attendance of the board when scheduled per meeting?
Less than 5 5 to 10 11 to 15
16 to 20 More than 20
Less than 5 5 to 10 11 to 15
16 to 20 More than 20
41
4. What are the scheduled board meetings annually?
Less than 5 5 to 10 11 to 15
16 to 20 More than 20
Board Independence
5. How many of the board members are outside directors?
None 1 2 3 Above 4
42
APPENDIX II: List of Commercial Banks in Kenya
43
28. Jamii Bora Bank Limited
29. Kenya Commercial Bank Limited
30. Middle East Bank Kenya Limited
31. National Bank of Kenya Limited
32. NIC Bank Limited
33. M- Oriental Commercial Bank Limited
34. Paramount Universal Bank Limited
35. Prime Bank Limited
36. Sidian Bank Limited
37. Spire Bank Limited
38. Standard Chartered Bank Kenya Limited
39. Trans- National Bank Limited
40. UBA Kenya Bank Limited
41. Victoria Commercial Bank
42. HFC Limited
44
APPENDIX III: Research Data
AV.
NO. PE BR ILP1 AV.ILP CP1i CP1ii CP2 CP IB1 IB2 IB3 AV.IB ROE BSCRD
1 5 1 4 4 2 2 1 1.67 2 1 1 1.33 0.06 1.77
2 5 1 3 3 5 2 3 3.33 2 1 2 1.67 0.00 2.00
3 5 1 5 5 1 1 2 1.33 2 1 2 1.67 0.28 2.07
4 3 3 3 3 1 1 1 1.00 2 1 1 1.33 0.06 1.35
5 5 5 5 5 2 2 1 1.67 2 1 1 1.33 0.00 2.00
6 5 2 3 3 2 2 3 2.33 2 1 1 1.33 0.28 1.74
7 5 2 2 2 1 2 1 1.33 1 1 3 1.67 0.23 1.31
8 4 1 3 3 3 3 1 2.33 3 1 3 2.33 0.23 1.97
9 5 5 2 2 3 4 1 2.67 2 3 3 2.67 0.17 1.88
10 4 1 3 3 2 2 1 1.67 2 1 3 2.00 0.23 1.72
-
11 4 1 2 2 1 1 1 1.00 2 1 1 1.33 0.41 0.98
12 5 3 3 3 2 2 1 1.67 3 4 1 2.67 0.24 1.89
13 1 1 5 5 1 1 1 1.00 3 1 1 1.67 0.07 1.93
14 2 1 3 3 2 2 1 1.67 2 1 5 2.67 0.02 1.84
15 3 5 5 5 4 5 1 3.33 1 3 1 1.67 0.19 2.55
-
16 3 5 3 3 2 2 3 2.33 2 1 3 2.00 0.66 1.67
17 2 1 4 4 2 2 1 1.67 2 1 2 1.67 0.04 1.84
18 4 1 4 4 2 2 3 2.33 2 1 1 1.33 0.37 2.01
-
19 4 1 4 4 1 2 3 2.00 2 1 4 2.33 0.12 2.05
20 3 1 5 5 3 3 1 2.33 2 1 2 1.67 0.13 2.28
21 5 1 3 3 2 2 3 2.33 2 1 2 1.67 0.03 1.76
22 4 3 3 3 3 3 3 3.00 2 3 1 2.00 0.10 2.03
23 2 2 2 2 3 3 1 2.33 2 1 1 1.33 0.06 1.43
24 5 5 4 4 4 5 1 3.33 3 2 2 2.33 0.05 2.43
25 5 1 2 2 1 2 1 1.33 2 1 2 1.67 0.21 1.30
26 5 4 2 2 3 3 1 2.33 2 1 1 1.33 0.14 1.45
27 4 2 2 2 2 2 3 2.33 2 1 2 1.67 0.31 1.58
-
28 4 1 2 2 2 2 1 1.67 2 1 2 1.67 0.04 1.32
29 3 3 2 2 2 3 1 2.00 2 2 3 2.33 0.10 1.61
30 4 2 3 3 1 2 1 1.33 3 1 4 2.67 0.20 1.80
45
BS1 BS2 AV. BS FBM1 FBM2 AV.FBM BI1 BI2 AV.BI CG
2 2 2 2 2 2 4 4 4 2.67
2 2 2 2 3 2.5 1 3 2 2.17
2 2 2 3 2 2.5 1 1 1 1.83
1 1 1 4 2 3 5 5 5 3.00
2 2 2 4 2 3 3 5 4 3.00
3 3 3 4 2 3 1 4 2.5 2.83
2 2 2 1 2 1.5 1 4 2.5 2.00
2 2 2 1 3 2 3 3 3 2.33
3 2 2.5 1 2 1.5 1 1 1 1.67
1 1 1 1 1 1 1 2 1.5 1.17
1 1 1 1 2 1.5 1 1 1 1.17
3 3 3 2 2 2 4 4 4 3.00
2 2 2 3 3 3 4 5 4.5 3.17
2 2 2 2 2 2 1 2 1.5 1.83
2 2 2 3 2 2.5 5 4 4.5 3.00
2 2 2 3 3 3 2 3 2.5 2.50
2 2 2 1 2 1.5 1 2 1.5 1.67
2 2 2 2 2 2 5 4 4.5 2.83
2 2 2 3 3 3 5 5 5 3.33
2 2 2 3 2 2.5 1 1 1 1.83
1 1 1 2 1 1.5 1 2 1.5 1.33
2 2 2 4 2 3 2 3 2.5 2.50
2 2 2 3 2 2.5 5 5 5 3.17
2 2 2 2 2 2 1 1 1 1.67
2 2 2 3 2 2.5 1 1 1 1.83
3 3 3 3 2 2.5 5 5 5 3.50
3 3 3 2 2 2 5 4 4.5 3.17
2 1 1.5 2 1 1.5 1 1 1 1.33
2 2 2 3 1 2 1 1 1 1.67
3 2 2.5 2 3 2.5 5 4 4.5 3.17
46