Corporate Governance and Financial Performance of Commercial Banks in Kenya: A Critical Review of Literature
Author(s)
Marcus S. Lungatso , Dr. Otuya Willis ,
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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
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