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EFFECT OF BOARD CHARACTERISTICS ON FINANCIAL PERFORMANCE OF THE BANKING SECTOR IN KENYA: CASE OF LISTED COMMERCIAL BANKS IN NAIROBI SECURITIES EXCHANGE

 

Immaculate N. Mwangi

School of business, The Catholic university of Eastern Africa

P. O. Box 62157, 00200 Nairobi, Kenya

 

Dr. Gabriel N. Kirori

School of business, The Catholic university of Eastern Africa

P. O. Box 62157, 00200 Nairobi, Kenya

 

Mr. John Omurwa

School of business, The Catholic university of Eastern Africa

P. O. Box 62157, 00200 Nairobi, Kenya

 

CITATION: Mwangi, I., N., Kirori, G., N., Omurwa, J. (2017). Effect Of Board Characteristics On Financial Performance Of The Banking Sector In Kenya: Case Of Listed Commercial Banks In Nairobi Securities Exchange. International Journal of Economics and Finance. pp 39 – 57.

ABSTRACT


The study examined the effect of the board of directors’ (BOD) characteristics on the financial performance of the banking sector in Kenya by looking at the listed commercial banks in the Nairobi Securities Exchange (NSE). It used the director independence, board of director financial expertise, and multiple directorships as proxies of boardof directors characteristics of the 11 listed commercial banks in the NSE. The agency theory was used as the theoretical framework for the study. The sampling frame was the 11 listed commercial banks for the period 2009-2016 that were selected using judgmental sampling, while the unit of measure was the board of directors of the listed commercial banks in the NSE. Panel data was used to test the effect of the board of directors’ characteristics on the financial performance of listed commercial banks in the NSE. The study revealed that the overall model is significant at 5% significance level with a p-value of 0.0283. The study further concludes that the more the board of directors is independent the more there is attainment of high return on assets (financial performance). It was found that a unit increase in director independence could result in 0.0198 increase in return on assets (financial performance).The study also concludes that an increase in number of board members with financial expertise could lead to increase in return on assets  with specific reference to both fixed and random effects analyses by a factor of 0.246 and 0.290 respectively. This therefore implies that the more the number of board members with financial expertise the more the improved financial performance of the listed banks.

 

Key Words : Board of director independence , Board financial expertise , Board multiple directorships , Financial performance, NSE

 

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