Leadership Style and Financial Performance of Commercial Banks in Kenya

Abstract

This study aimed at establishing the influence of leadership style on the financial performance of commercial banks operating in Kenya. The study adopted a positivist philosophy, correlational and cross-sectional research deigns and a target population comprising management staff working in commercial banks. 385 respondents were selected from 10,395 management staff. Primary data was collected using structured questionnaires with data being analyzed using both descriptive and inferential statistics. Parametric test statistics was adopted to establish the significance influence of variable effect at 95% level of significance as well as to test the study hypothesis. The regression of coefficients indicates that transformational leadership has a positive and significant partial effect on financial performance of commercial banks in Kenya with Democratic Leadership having a positive and significant partial effect on financial performance of commercial banks in Kenya. The study also shows that autocratic leadership has a positive and significant partial effect on financial performance of commercial banks in Kenya while Laissez-Faire leadership has a negative and significant partial effect on financial performance of commercial banks in Kenya. The study recommends that that top managers of the commercial banks need to take up effective transformational and democratic leadership style in their management programs. This can be achieved through staff training and development using both in-house and open training programs as well as continuing development programs. Banks should join hands with training and educational institutions in regard to development of leadership modules under their training programs.

A Study of Influencing Leadership Styles on Financial Performance in Saudi Arabian Commercial Banks

“…These results were supported by regression analysis indicating that democratic and transformational leadership explained 17.4% and 22.1% of variance in ROA and ROE respectively. In contrast, autocratic leadership demonstrated a positive but statistically insignificant effect on the same parameters, indicating that while potentially useful in certain scenarios, it may not be universally beneficial (Mwangi et al, 2022). These findings align with Puni et al (2014) who found no significant relationship between any leadership style (transformational, transactional, or laissez-faire) and financial performance in Ghanaian banks, although democratic leadership had a slightly stronger correlation.…”

“…Several studies have found that democratic and transformational leadership styles positively impact financial performance in commercial banks. For example, a study on leadership style and financial performance in commercial banks in Kenya showed that democratic and transformational leadership had a significant positive influence on return on assets (ROA) and return on equity (ROE) (Mwangi et al, 2022). These results were supported by regression analysis indicating that democratic and transformational leadership explained 17.4% and 22.1% of variance in ROA and ROE respectively.…”

Analysis of Corporate Governance Practices on Financial Performance of Foreign Banks in Kenya: A Case of Standard Chartered Bank

“…Good CG goes beyond conventional ethical standards and encourages top managers and senior executives to regulate their behavior with a focus on greater responsibility and leadership roles within businesses. CG ensures that company directors and administrators prioritize efficient and equitable protection for all shareholders (Mwangi, 2022). In recent years, the Kenyan banking sector and the broader region have experienced several bank collapses and increased merger and acquisition activities due to weak CG frameworks.…”