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Influence of the Capital Markets Authority's Corporate Governance Guidelines on Financial Performance of Commercial Banks in Kenya

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  • Charles M. Rambo

Abstract

Good corporate governance is indispensable for the survival and performance of corporate entities. The purpose of the Capital Markets Authority’s (CMA) Guidelines on good corporate governance was to improve governance practices in the corporate sector, as well as attract and retain investors for sustained economic growth. A rampant trend of commercial banks placed under receivership between 1990 and 2005 inspired this study. As at the time of the study, the Guidelines had been operational for about eight years. Although statistics at that time suggested that the banking sector had improved by reducing the proportion of non-performing loans, there was no documentation linking the Guidelines to this achievement. I sourced primary data from 16 commercial banks, seven of which traded at the Nairobi Stock Exchange (NSE). I applied one-way Analysis of Variance (ANOVA), Pearson’s Correlation Coefficient and multiple regression models to analyze the data. The results show that listed and unlisted commercial banks were significantly different in terms of board size, proportion of executive and non-executive directors, gender composition, cost of board maintenance, composition of audit committees, frequency of financial disclosures and more importantly, financial performance. The study emphasizes the need for a legal framework to enforce alignment with CMA Guidelines to safeguard members of the public from losing their savings and also ensure stability of the financial sector to enable the country attain targeted economic growth at 10 percent per annum.

Suggested Citation

  • Charles M. Rambo, 2013. "Influence of the Capital Markets Authority's Corporate Governance Guidelines on Financial Performance of Commercial Banks in Kenya," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 7(3), pages 77-92.
    • Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:3:p:77-92
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    References listed on IDEAS

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    1. Klapper, Leora F. & Love, Inessa, 2004. "Corporate governance, investor protection, and performance in emerging markets," Journal of Corporate Finance, Elsevier, vol. 10(5), pages 703-728, November.
    2. Ahmadu Sanda & Aminu S. Mikailu & Tukur Garba, 2005. "Corporate governance mechanisms and firm financial performance in Nigeria," Working Papers 149, African Economic Research Consortium, Research Department.
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    Cited by:

    1. Max Reinwald & Hendrik Hüttermann & Julia Kröll & Sabine Boerner, 2015. "Gender Diversity in Führungsteams und Unternehmensperformanz: Eine Metaanalyse," Schmalenbach Journal of Business Research, Springer, vol. 67(3), pages 262-296, September.
    2. Vu, Manh-Chien & Phan, Thanh Tu & Le, Nhu Tuyen, 2018. "Relationship between board ownership structure and firm financial performance in transitional economy: The case of Vietnam," Research in International Business and Finance, Elsevier, vol. 45(C), pages 512-528.

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    More about this item

    Keywords

    Capital Markets; Corporate Governance; Financial Performance; Listed Banks; Unlisted Banks;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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