CORPORATE GOVERNANCE AND QUALITY OF FINANCIAL REPORTING OF COMMERCIAL BANKS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA
CORPORATE GOVERNANCE AND QUALITY OF FINANCIAL REPORTING OF COMMERCIAL BANKS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA
Kisanya, Luvusi Antony - Masters Student, Kenyatta University, Kenya
Dr. Charity Njoka - Department of Accounting and Finance, Kenyatta University, Kenya
Dr. Daniel Makori - Department of Accounting and Finance, Kenyatta University, Kenya
ABSTRACT
In Kenya, the banking sector is heavily regulated to safeguard investor trust, given the critical economic function of banks. However, research indicates that even healthy organizations operating financially secure have experienced problems related to their financial strategies. Several banking institutions in Kenya have experienced failures over time, largely attributed to financial embezzlement linked to substandard financial reporting. This issue has been exacerbated by the persistent challenges facing the emerging economy. Consequently, publicly listed companies must incur substantial agency costs to mitigate information asymmetry and counteract the self-serving behaviors of managers. As a result, banking sector regulators have been very active in the introduction of regulatory policies to enhance the public’s confidence. For instance, the Capital Market Authority in Kenya replaced the earlier guidelines of corporate governance that had been established in the year 2002 with the 2015 Code, thus targeting to align and comply with the best practices across the globe owing to dynamic business environments. The study purposed to assess the effect of corporate governance on quality of financial reporting of commercial banks quoted at Nairobi Security Exchange. The specific research’s main goal was to demonstrate how board independence affected quality of financial reporting among of commercial banks quoted at Nairobi Security Exchange. The study was based on Agency theory and Positive Accounting theory. Positivist research philosophy and explanatory research design was adopted, obtaining secondary panel data targeting all the eleven listed commercial banks for the period 2017 to 2021. The study utilized the panel regression model for analysis. The target population encompassed all the eleven listed commercial banks at NSE under investigation from 2017 to 2021. Census was applicable as the sampling design. The analysed data was presented using tables, graphs and charts. Corporate governance practises showed adverse relationship with quality of financial reporting among listed commercial banks on Nairobi Securities Exchange. The regression analysis results revealed board independence had a negative and significant influence (β1=-0.0242, p=0.0158). Consequently, the study suggests enhancement of board independence to improve the effectiveness of independent board members in strategic decisions made by listed commercial banks at Nairobi Securities Exchange during reporting process.
