Corporate governance and bank performance: Does ownership matter? Evidence from the Kenyan banking sector

Abstract

This paper provides an empirical analysis of banks performance in Kenya. The primary purpose of this study is to investigate the association between ownership structure characteristics and bank performance. Data utilised in the study is collected from the Financial Institutions Department of the Central Bank of Kenya, both on-site inspection reports and off-site surveillance records. Empirical results indicate that ownership structure of banks significantly influence their financial performance. In particular, board and government ownership are significantly and negatively associated with bank performance, whereas foreign ownership is strongly positively associated with bank performance, and institutional shareholders have no impact on the performance of financial institutions in Kenya. The study makes a significant contribution to financial research by extending examination of banks performance to a developing country context beyond the usual confines of the developed western economies, and adds to the small number of similar studies in the African context. The results are consistent with prior research findings, and more importantly, presents statistical justification for pursuing further corporate governance reforms with respect to banks’ ownership structure to enhance the financial stability of the sector

Corporate Ownership, Corporate Control and Corporate Performance in Sub-Saharan African: Evidence from Nigeria

“…Table 3 shows the correlation matrix for the variables under investigation. The correlation that is worthy of note is the 0.667 correlation between MPS and EPS, which is however below the maximum correlation of 0.8 allowable (see Barako & Tower;2006;Gujarati & Sangeetha, 2007). The correlation analysis suggests that multicollinearity does not present a challenge in this study.…”

“…Second, we perform correlation analysis to establish the short-run relationship between the independent and control variables. It has been suggested that checks for multicollinearity among the explanatory variables generally are necessary because high correlations cause problems about the relative contribution of each predictor to the success of the model (Barako & Tower, 2006).…”

Firm Characteristics and Compliance with International Financial Reporting Standards (IFRS) by Listed Financial Services Companies in Nigeria

“…The low correlation among the independent variables is an indication that multicollinearity may not be a problem to the study. The suggestion in the empirical literature is that correlation between the independent variables is considered undesirable for multivariate analysis only if it exceeds 0.8 (see Barako & Tower;Gujarati & Sangeetha, 2007).To further confirm the absence of multicollinearity among the independent variables, variance inflation factor (VIF) was used. The VIF for all the variables is less than 3 which is far less than 10 considered harmful for regression analysis (ibid).…”

Corporate Governance and Bank Performance: A Study of Selected Banks in GCC Region

“…Fallatah and Dickins (2012), concluded that corporate governance and firm performance (measured as return on assets) are unrelated, but corporate governance and value of firm (as measured by Tobin's Q and market value of equity) are positively related. Barako and Tower (2007), found foreign and government ownership in board are negatively related with firm performance. Similarly, Heracleous (2001) conducted a research on the theme and concluded, "researches have failed to find any convincing connection between the best practices in corporate governance and organizational performance".…”