INFLUENCE OF CORPORATE GOVERNANCE PRACTICES ON PERFORMANCE OF COMMERCIAL BANKS IN NAIROBI CITY COUNTY, KENYA
INFLUENCE OF CORPORATE GOVERNANCE PRACTICES ON PERFORMANCE OF COMMERCIAL BANKS IN NAIROBI CITY COUNTY, KENYA
Benedict Kinyua Ngatia - Masters of Science (MSC), Jomo Kenyatta University of Agriculture and Technology, Kenya
Dr. Evans Nyamboga Mandere - Lecturer, Jomo Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
Corporate governance plays a key role in the strategic direction of an organization by deciding which strategies to be adopted. The CBK Annual Bank Supervision reports for the period 2018 to 2022 indicated a declining trend in performance of Kenyan commercial banks. Tier-3 Banks consistently indicated a drop in Return on Assets (ROA), falling from -0.73% in 2018 to -1.36% in 2022. Collectively, these banks averaged a -3.5% Return on Equity (ROE) during the same period. This study aimed to explore the influence of corporate governance practices on performance of commercial banks in Nairobi City County, Kenya. The study delved into how practices related to digitization, innovation, board diversity, and organizational structure influence bank performance. The research involved surveying 95 departmental managers and 19 directors as participants, selected from 19 out of the 21 commercial banks categorized as Tier-3 according to the Central Bank of Kenya (CBK) classification for the timeframe 2018 to 2022. A sample survey was conducted using closed-ended and open-ended questionnaires. Secondary data was extracted from published CBK Annual Bank Supervision reports spanning from 2018 to 2022. To ensure the validity of the questionnaire content, subject matter experts including the supervisor and defense panelists were consulted to verify content validity. The reliability of the research instrument was evaluated using the Cronbach alpha test, with an acceptable value of α ≥ 0.7. Data analysis encompassed descriptive and inferential statistics. Descriptive analysis entailed summarizing data using tables and elucidating characteristics using frequencies, means, and standard deviations. Inferential analysis involved encoding data in the SPSS software, followed by conducting multiple regression analysis to ascertain the adjusted R-square value. The findings were interpreted to understand the correlation between digitization, innovation, board diversity, organizational structure practices, and the performance of commercial banks in Nairobi City County, Kenya. The findings of the study indicated that digitization is statistically significant, board diversity had a strong statistical significance, innovation was marginally significant, while organizational structure had borderline significance in the relationship between corporate governance practices and performance of commercial banks in Nairobi City County, Kenya.
