Role of Corporate Transparency on Financial Performance of Commercial Banks Listed in the Nairobi Security Exchange

Abstract

Financial stability and integrity of the system heavily rely on corporate transparency. Despite existing regulatory requirements, persistent issues such as unclear financial statements, questionable accounting practices, and insufficient disclosures undermine investor confidence and market efficiency. These shortcomings can lead to conflicts of interest, mismanagement, and increased exposure to financial risks. The purpose of this study was to investigate the impact of corporate transparency on the performance of listed commercial banks in Kenya, specifically focusing on financial transparency and governance transparency. Guided by theories such as agency theory and stewardship theory, the study adopted a positivism research philosophy and a correlation design. The target population consisted of employees from listed commercial banks that have consistently operated on the securities exchange between 2008 and 2023. A census sampling method was employed, where data was collected from all 11 listed commercial banks in Kenya, using secondary data from financial reports, regulatory filings, and other publicly available sources from the period 2008 to 2023. Data analysis included descriptive and inferential statistics, such Pearson correlation, multiple regression, the coefficient of determination (R²) and p-values. The findings revealed a significant positive relationship between corporate transparency and commercial bank performance. Financial transparency and governance transparency were found to have positive and significant effects on commercial bank performance, with β coefficients of 0.553 and 0.728, respectively, and p-values < 0.05, leading to the rejection of the null hypotheses for both variables. Descriptive statistics indicated that listed commercial banks had an average return on capital employed (ROCE) of 7% annually, with a minimum of 9% and a maximum of 17%. Regression results demonstrated that 64.2% of the variation in bank performance could be explained by financial and governance transparency, with an adjusted R² of 61.2%. The study concluded that corporate transparency significantly enhances the performance of listed commercial banks and provides valuable insights to improve corporate governance and financial stability in Kenya’s banking sector.