CORPORATE GOVERNANCE AND BANK PERFORMANCE: DOES OWNERSHIP MATTER? EVIDENCE FROM THE KENYAN BANKING SECTOR

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Dulacha G. Barako, Greg Tower

DOI:10.22495/cocv4i2p13

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.

Keywords: Corporate Governance, Ownership Structure, Central Bank of Kenya

How to cite this paper: Barako, D. G., & Tower, G. (2007). Corporate governance and bank performance: Does ownership matter? Evidence from the Kenyan banking sector. Corporate Ownership & Control, 4(2), 133-144. http://dx.doi.org/10.22495/cocv4i2p13