Stocks Listing of the Institutions 

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... views the firm as a governance structure. She notes that certain economic benefits to the firm exits when a firm undertakes transactions internally rather than external. Mallin further states that in its turn, the firm becomes larger, the more transactions it undertakes and will expand up to the point where it becomes cheaper or more efficient for the transaction to be undertaken externally. Stiles and Taylor (2001) point out that this theory is concerned with managerial discretion and it assumes that managers are given to self-interest seeking and moral hazard and that they operate under bounded rationality. The theory also regards the board of directors as an instrument of control hence, managers will tend to sacrifice rather than maximise profit of course not being in the interests of shareholders just like the agency theory (Mallin, 2007). 2.7 Knowledge Gap Many other researchers have examined the relationship between variety of governance mechanisms and firm performance. However, the results are mixed. Some examine only the impact of one governance mechanism on performance, while others investigate the influence of several mechanisms together on performance. There is a yawning gap that exists since none of them covers effects of ownership structure on corporate governance and performance specifically in the commercial banking sector in Kenya. The only study done in Kenya by the Centre for Corporate Governance focussed on governance practices in the commercial banking sector in Kenya. More so, the many unpublished work done in Kenya followed suit by focusing corporate governance in general with only one study among them focussing on the relationship between implementation level of Capital Markets Authority guidelines on corporate governance and profitability of companies listed at the Nairobi Stock Exchange (NSE). It is against this background that the researcher found it necessary to carry out a study on ownership structure and corporate governance and its effects on performance in the Kenyan commercial banking sector to bridge the gap that exist. In order to look at the ownership structure and corporate governance and its effects on performance in the Kenyan commercial banking sector, a survey design was used. The population of the study comprised of banks within Nairobi City in Kenya. Stratified sampling was employed to select the banks. A total of 40 bank managers drawn from state-owned, locally-owned and foreign-owned banking institutions selected through purposive sampling procedure participated in the study. The stratification of the sample allowed for diversity of views and statistical analysis. A semi-structured questionnaire consisting of both closed and open-ended questions was used. The questionnaire was personally administered to the bank managers to collect primary data from the selected banks. Descriptive ways of Statistical Package for Social Sciences (SPSS) were used to analyze the data into frequencies and percentages. One-way Analysis of Variance (ANOVA) was used to test the hypotheses. This survey used Alpha – α (Cronbach), the model for internal consistency based on average inter-item correlation to test scaled items. Brown (2002) indicates that Cronbach’s alpha reliability coefficient normally ranges between 0 (if no variance is consistent) and 1 (if all variance is consistent). The closer the coefficient is to 1.0 the greater the internal consistency of the items in the scale. An alpha ( α ) score of 0.70 or higher is considered satisfactory (Gliem and Gliem, 2003). All reliability tests had Cronbach’s Alphas of higher than 0.7. The results suggest that all items had higher than minimum requirement of Alpha. As concerns validity, the researcher gave the questionnaire to two experts in business research to look at them independently for content validity. Their suggestions on the content and structure were then included to improve the final draft of the instrument. The first research question sought to establish the type of bank ownership structure that exists in order to find out the representation of the banks in the study. The type of bank ownership represents the status of majority shareholders. This survey uses three main types of ownership: foreign owned banks, state-owned banks and local-owned banks. Figure 3 shows data obtained from the field regarding type of bank ownership. 40% of the banks that participated in the study were foreign owned, 32.5% had substantive government participation while 27.5% were locally owned. In addition to the type of ownership, the study was interested in knowing institutions’ listing on the stock exchange. The respondents’ were asked to indicate whether the institutions were listed on the Nairobi Stock Exchange (NSE). The question was asked to establish whether the corporations listing had some relationship with its current performance. Data obtained from the field regarding the institutions’ listing were analyzed and presented as shown in Figure 4. Majority, 80% of the banks that participated in the study were indeed listed on the stock exchange. Only 20% indicated that they are not listed on the Nairobi Stock Exchange. It was also of the interest of the researcher to know the present controlling shareholders of the institutions. This question was asked in order to determine whether respondents are aware of the present controlling shareholders of the institutions in which they work for. Results from Table 1 indicate percentage scores of present controlling shareholders of the institutions. The scores range from yes 10% to 32.5%. The results show that the present controlling shareholders of the three types of ownership of banks is varied. Other controlling shareholders as the study found out is that institutions such as cooperative societies 12.5% and government parastatal bodies such as the National Social Security Fund (NSSF) 10% controlled some banks. Similarly, the researcher also sought to know the number of directors in the board who represent the controlling group. Information on number of directors in the boards of institutions under study that also represent controlling group was deemed important because it would enable in knowing whether good governance is followed in organizations. The results are as shown in Table 2. Banks had a varying representation of directors in the board who represent the controlling group. Majority, 15 percent have between 1 – 3 directors in the board, 12.5% have between 4 – 9 directors while only 10 percent have more than 13 directors in the board who also represent the controlling group. Hence, the researcher concluded that the institutions had varying representation in the controlling group as directors. According to generally accepted corporate governance practices, up to eleven (11) directors is the required number to make an effective board. The Central Bank of Kenya requires all institutions licensed under the Banking Act, to have at least five directors, at least three-fifths of who should be Non-Executive Directors, in order to achieve the necessary balance. In order to gain an in-depth understanding of the current ownership structure in terms of share percentage of the banks under study and whether the share percentage had changed with time, the researcher asked respondents to indicate the percentage of shares owned by the state for state owned banks, managers, workers, domestic individuals, institutional and foreign investors. In the banks surveyed, though the state still had majority shares of over 70% in state-owned banks, from the findings it was evident that the state was slowly withdrawing from active participation in some banks by periodically offloading shares as some respondents noted. This may be seen as one way of encouraging other participants in owning some of its institutions hence in line with the privatisation process that the government started way back in the 90s. In locally-owned banks and foreign banks, share ownership varied. At least managers and workers held between 0 – 5 percent of the shares each in local banks as 20% of respondents in the study noted while in foreign-owned banks employees owned up to 20% of the shares. For domestic individual investors, domestic institutional investors and foreign investors each owned up to 25% of shares. This can be termed as a move to encourage ownership of firm to other investors who are not really the owners. Corporate governance practices represent the actual efforts (behaviours) of banks in implementing good corporate governance. This construct consisted of several attributes, focussing on the rules of board of directors’ practices. It was noted that majority, over 60% of the respondents who participated in the study agreed that their institutions practice good corporate governance on issues such as the board of directors having regular meetings, having a clear list of the share owned by members of the board, clear internal written policy regarding board members having concurrent positions as directors in other companies, regularly formal performance appraisal review of the board, the board having effective meeting procedures firm provides equal access to information for shareholders and investment analysts and lastly, the firm publishes and distributes its financial results and management analysis. Similarly, over 50% agreed that their banks adhere to other corporate governance practices such as active monitoring of the results of the monthly business by the board, proper minutes records being kept and posting of financial results and management analysis on the internet. On the other hand, 62.5% disagreed to the statement indicating any potential conflicts of interest between the bank and the member of its boards exists. Agreement to the corporate governance practices may be attributed to the laid down regulatory framework and guidelines on corporate governance by the regulating body in this case the Central Bank of Kenya that ...