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Effect of Firm Characteristics on Financial Performance of Listed Commercial Banks in Kenya

Author

Listed:
  • Rodah Mong'ina Nyabaga

    (Jomo Kenyatta University of Agriculture and Technology, Juja, Kenya)

  • Joshua Wephukulu Matanda

    (Jomo Kenyatta University of Agriculture and Technology, Juja, Kenya)

Abstract

A country s economy relies majorly on the banking sector. This study examined the effect of firm characteristics on financial performance with a focus on listed banks in the Nairobi Securities Exchange for the period from 2010 to 2018. The bank characteristics examined were: capital adequacy, leverage, asset quality and bank size. The collected data was analyzed using STATA 11 and this was basically descriptive, correlation and regression analysis. The findings depicted a significant positive effect of capital adequacy on both returns on equity (ROE) and returns on assets (ROA). The findings further indicated a significant negative effect of asset quality on ROE but an insignificant negative effect on ROA. On leverage, the findings indicated a significant positive effect on ROE and an insignificant positive effect on ROA. The findings of this study indicated that bank size has a significant positive effect on both ROE and ROA. This study concluded that capital adequacy and bank size have a significant positive effect on performance. There were mixed findings on the effect of asset quality and leverage on performance. The study recommended that, listed commercial banks should maintain a considerable capital adequacy to be able to effectively absorb losses emanating from economic shocks.

Suggested Citation

  • Rodah Mong'ina Nyabaga & Joshua Wephukulu Matanda, 2020. "Effect of Firm Characteristics on Financial Performance of Listed Commercial Banks in Kenya," International Journal of Economics and Financial Issues, Econjournals, vol. 10(3), pages 255-262.
    • Handle: RePEc:eco:journ1:2020-03-30
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    References listed on IDEAS

    as
    1. Christian John Mbekomize & Mogotsinyana Mapharing, 2017. "Analysis of Determinants of Profitability of Commercial Banks in Botswana," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 7(2), pages 131-144, April.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    4. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    5. Philippe Gaud & Elion Jani & Martin Hoesli & André Bender, 2005. "The Capital Structure of Swiss Companies: an Empirical Analysis Using Dynamic Panel Data," European Financial Management, European Financial Management Association, vol. 11(1), pages 51-69, January.
    6. Vincent Okoth Ongore & Gemechu Berhanu Kusa, 2013. "Determinants of Financial Performance of Commercial Banks in Kenya," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 237-252.
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    Cited by:

    1. Aham Edward Kanuto & Niu Xionying, 2022. "Impact of corporate social responsibility, trade enhancement, and firm characteristics on firm performance," International Journal of Science and Business, IJSAB International, vol. 10(1), pages 1-11.
    2. Kennedy Ochuka & Kennedy Okiro & Fredrick Ogilo, 2024. "Effect of Efficiency on the Relationship between Organization Characteristics and Financial Performance of Commercial Banks in Kenya," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(7), pages 2613-2623, July.

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    More about this item

    Keywords

    Firm characteristics; financial performance; Commercial banks;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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