Board Size and Financial Performance of Commercial Banks in Kenya

Abstract

Board of directors are individuals appointed to oversee the operations of the firm by shareholders. They ensure that operations of the firm are carried out in a more effective manner. Board size as part of board characteristics contributes positively to the firm’s financial performance. Due to agency problems, board size had been expanded to incorporate a variety of expertise and interest groups. However, there is no one board size fit all, the size is determined by the industry and the country of operation. Begging the need for examination of the influence of board size on return on equity of commercial banks operating in Kenya. The target population was 43 commercial banks in operation in Kenya as at 31st December 2017. Secondary data on board size as independent variable and return on equity as a dependent variable for 34 commercial banks for the years 2008 to 2017 was obtained from the internet and perusal of the annual accounts of the individual commercial banks. The study adopted causal research design. Using STATA Version 13 to analyse data, the study used2W both descriptive and inferential statistics. Based on the analysis, the study concluded that overall, board size had a negative but significant influence on return on equity on commercial banks in Kenya. The study also found that board size had a positive and significant influence on return on equity across time. However, in regard to time, board size had a negative but significant variability on return on equity across time. In the case of across banks, board size had a negative but significant influence on return on equity across banks. In consideration of the individual banks, board size had a positive and significant variability on return on equity across banks. The third aspect of groupings, board size had insignificant influence on return on equity across peer. While on individual groups, board size had a positive and significant variability on return on equity across peer. The study recommended a board size of between 6 and 10 board members to embrace a mixture which caters for various interests to facilitate better financial performance.

Keywords: Board Size, Return on Equity, Commercial Banks in Kenya

DOI: 10.7176/RJFA/10-24-14

Publication date: December 31^st 2019