Ownership structure and financial performance: Evidence from Kenyan commercial banks

Area of Science:

• Financial Economics
• Corporate Governance
• Banking Sector Analysis

Background:

• Ownership structure is a critical determinant of firm performance.
• Understanding these dynamics is vital for the stability and profitability of the banking sector.

Purpose of the Study:

• To investigate the relationship between ownership structures and financial performance metrics of Kenyan commercial banks.
• To identify specific ownership types that influence key performance indicators.

Main Methods:

• Analysis of audited financial statements from 39 commercial banks in Kenya (2009-2020).
• Application of regression analysis to determine the explanatory power of ownership structures.

Main Results:

• Ownership structures significantly explain variations in financial performance, particularly Net Interest Margin (53.04%) and Return on Assets (31.37%).
• State, management, institutional, and foreign ownership showed negative associations with specific performance indicators like Net Interest Margin, Return on Assets, and Earnings Per Share.

Conclusions:

• Commercial banks should strategically vary ownership structures to enhance financial performance.
• Recommendations include partial privatization for state-owned banks, limits on managerial and institutional ownership, and clear policies for foreign investor involvement.