Influence Of Corporate Governance On Financial Performance: Case of Cooperative Bank Of Kenya (Co-Op)

Abstract

The study focused on the influence of corporate governance on financial performance of the Cooperative Bank of Kenya (COOP). The specific objectives were: to investigate the relationship between board composition and financial performance, to examine the impact of ownership structure on financial performance, to assess the relationship between executive compensation practices and financial performance, and to evaluate the effects of transparency indicators on financial performance. The study was conducted at COOP's headquarters and branches in Kenya. It was based on the Agency Theory, Stakeholder Theory, and Stewardship Theory. A quantitative methodology with a correlational design was adopted. The target population consisted of 850 COOP employees and stakeholders across different levels. Purposive and stratified random sampling techniques were used to obtain a sample of 230 respondents. Data was collected using structured questionnaires and analyzed through descriptive statistics, Pearson's correlation, and multiple regression analysis. Content validity was ensured through expert reviews, while reliability was tested using Cronbach's alpha. The findings revealed a positive and significant relationship between board composition, ownership structure, and executive compensation on financial performance measured by return on assets and net profit margin. However, transparency indicators showed a positive but insignificant effect. The correlation coefficients for board composition, ownership structure, executive compensation and transparency indicators were 0.872, 0.889, 0.864 and 0.732 respectively (p < 0.05), indicating a strong association with financial performance. The regression analysis demonstrated that board composition accounted for 37.3%, ownership structure 59.2%, executive compensation 25.7%, and transparency indicators 11.9% of the variation in financial performance. The study concluded that effective corporate governance practices, particularly board composition, ownership structure, and executive compensation significantly influence financial performance within COOP, while transparency indicators had a weaker effect. Recommendations included enhancing board diversity, strengthening ownership structures, aligning compensation with performance, and improving transparency practices and disclosures. The findings contribute empirical evidence to the existing knowledge and provide actionable insights for decision-makers in the banking sector and regulatory bodies.