The Joint Effect of Corporate Governance, Risk Management and Firm Characteristics on Financial Performance of Commercial Banks in Kenya

International Journal of Economics and Management Studies

© 2019 by SSRG - IJEMS Journal

Volume 6 Issue 12

Year of Publication : 2019

Authors : Herick Ondigo, PhD

10.14445/23939125/IJEMS-V6I12P111

How to Cite?

Herick Ondigo, PhD, "The Joint Effect of Corporate Governance, Risk Management and Firm Characteristics on Financial Performance of Commercial Banks in Kenya," SSRG International Journal of Economics and Management Studies, vol. 6,  no. 12, pp. 91-111, 2019. Crossref, https://doi.org/10.14445/23939125/IJEMS-V6I12P111

Abstract:

Sound Corporate Governance and effective Risk Management are accepted as a major cornerstone of bank management by academicians, practitioners as well as by regulators. The Basel core principles for effective banking supervision, the Central Banks and Capital Market Authorities of different jurisdictions have, from time to time, issued guidelines on both Corporate Governance and Risk Management to ensure comprehensive and proper functioning of the financial system that align the interest of all the stakeholders .In spite of these interventions a number of banks have failed to operate above board forcing the regulators to intervene to ensure sanity in the financial system. The main objective of the study was to establish the relationships among Corporate Governance, Risk Management, Firm Characteristics and Financial Performance of commercial banks in Kenya. Scholars have used different performance measures/indicators to evaluate the financial performance of Banks. This study used the CAMEL rating model that incorporates five indicators of performance of banks; capital adequacy, asset quality, management quality, earnings, and liquidity. The CAMEL system was adopted due to its increasing has importance as a tool of measuring the overall soundness and safety of banks in the light of global financial crisis and bank failures. Multiple regression analysis was used to test the joint effect of Corporate Governance, Risk Management, and Firm Characteristics on bank Financial Performance.The study was guided mainly by the Agency theory, adopted a positivism research philosophy and used a cross sectional descriptive research design. The population consisted of 43 commercial banks registered in Kenya as at 31st December 2014.
Descriptive statistics and diagnostic tests were conducted on the data thereafter inferential statistics namely correlation analysis and regression analysis
were used to test the hypotheses. The findings of the study was that Corporate Governance, Risk Management and Firm Characteristics jointly
significantly predicted all bank Financial Performance attributes/indicators except for Liquidity. The study recommends that regulators, boards and management of commercial banks to ensure congruence in their activities (oversight, implementation and monitoring) with corporate objectives to enhance improved bank Financial Performance and value maximization.

Keywords:

Corporate Governance, Risk Management, Firm Characteristics, Financial Performance, Commercial Banks and Kenya

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