Corporate Governance and Financial Performance of Selected Commercial Banks in Mogadishu Somalia

ABSTRACT The purpose of this study was to investigate the effect of corporate governance on financial performance of selected commercial banks in Mogadishu Somalia. It was guided by three objectives, that included i) to determine the effect of transparency on the financial performance in commercial banks Mogadishu Somalia; ii) to establish the effect of accountability on the financial performance in commercial banks Mogadishu Somalia; iii) to identify the effect of board composition on the financial performance in commercial banks Mogadishu Somalia. The study comprised of a population of 94 respondents from which a sample size of 76 respondents were selected, and a descriptive research design was used to collect data from 76 respondents using selfadministered questionnaires as the main data collection instrument. Include the tools used to analyse which is self-administered questionnaire and documentary review checklist. The findings of this study were; transparency significantly affects financial performance of commercial banks in Mogadishu Somalia as indicated by the Fvalue=28.889 and Sig-value=.003, since the sig. value (0.000) was less than 0.05 and which is the maximum level of significance required to declare a significant effect, the findings revealed that there is a significant effect accountability has on financial performance of commercial banks in Mogadishu Somalia as indicated by the Fvalue=43.788 and Sig-value=.000, since the sig. value (0.000) was less than 0.05 and which is the maximum level of significance required to declare a significant effect. The findings also proved a positive significant effect board composition has on financial performance of commercial banks in Mogadishu Somalia as indicated by the positive Fvalue=136.347 and Sig-value=0.000, since the sig. value (0.000) was less than 0.05 and which is the maximum level of significance required to declare a significant effect. This implies that board composition highly affects the financial performance of commercial banks in Mogadishu Somalia. The researcher concluded that; applying of transparency as a corporate governance system can lead to the improvement in the financial performance of commercial banks since it increases on the quality and efficiency during corporate governance, the financial performance of commercial banks can be improved once accountability is effectively worked on because it helps to increase the customer responsiveness by reducing the demand gap thus giving satisfaction to the end customer by availing the desired financial services when needed, and board composition should base on customer orders, transaction forecasts and bank policy in order to stimulate customer demand which leads to the improvement in the financial performance of commercial banks. The study Recommended that; commercial banks should develop a good transparent system to monitor and track all the business transactions so that there is effectiveness in corporate governance and ensure to cover loopholes in the system to enhance financial performance of commercial banks, commercial banks should develop an effective accountability system for so as to boost financial performance of commercial banks, this will enable employees step up and doing what is best for the bank. The study contributed to knowledge by indicating that it is the fact that the research gap that has been filled by this study, it is the fact that the study covered both the content and geographical gap of corporate governance and financial performance of commercial banks. Another important revelation that can be xii attributed to this study is that it is now clear that corporate governance is somehow lacking among commercial banks in Mogadishu Somalia and little is done to improve the financial performance of banks in Mogadishu Somalia.

TABLE OF CONTENTS

DECLARATION ........................................................................................................i

APPROVAL .............................................................................................................ii

DEDICATION......................................................................................................... iii

ACKNOWLEDGEMENTS ........................................................................................iv

LIST OF FIGURE ....................................................................................................v

LIST OF TABLES.................................................................................................... vi

TABLE OF CONTENTS .......................................................................................... vii

LIST OF ABBREVIATIONS .....................................................................................x

ABSTRACT............................................................................................................. xi

CHAPTER ONE........................................................................................................1

INTRODUCTION ....................................................................................................1

1.0 Introduction........................................................................................................1

1.1 Background of the Study .....................................................................................1

1.1.1 Historical Perspective........................................................................................1

1.1.2 Theoretical Perspective .....................................................................................3

1.1.3 Conceptual Perspective .....................................................................................3

1.1.4 Contextual Perspective......................................................................................7

1.2. Problem statement.............................................................................................8

1.4 Research Objectives ............................................................................................9

1.5 Research Questions.............................................................................................9

1.6 Hypotheses.........................................................................................................9

1.7 Scope of the study ............................................................................................10

1.7.1 Geographical Scope ........................................................................................10

1.7.2 Content Scope................................................................................................10

1.7.3 Time Scope....................................................................................................10

1.8 Significance of the study....................................................................................11

1.9 Operational definition of key terms.....................................................................11

CHAPTER TWO.....................................................................................................13

LITERATURE REVIEW .........................................................................................13

2.0 Introduction......................................................................................................13

2.1 Theoretical Review ............................................................................................13

2.3 Review of related literature ................................................................................16

2.3.1 Relationship between Transparency and Organisational Performance ................17

2.3.2 Relationship between Accountability and Organisational Performance ................21

2.3.3 Relationship between board composition and organisational performance..........24

2.4 Related Studies .................................................................................................26

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2.5 Research Gaps ..................................................................................................28

METHODOLOGY...................................................................................................30

3.0 Introduction......................................................................................................30

3.1 Research Design ...............................................................................................30

3.2 Study population ...............................................................................................31

3.3 Sample Size ......................................................................................................31

3.4 Sampling technique ...........................................................................................32

3.5 Sources of Data ................................................................................................33

Primary data...........................................................................................................33

3.6 Research Instruments........................................................................................33

3.6.1 Structured Questionnaire ................................................................................33

3.6.2 Document Review Checklist ............................................................................33

3.7 Validity and Reliability of Research Instruments ..................................................33

3.7.1 Validity ..........................................................................................................34

3.7.2 Reliability .......................................................................................................34

3.8 Data gathering procedure ..................................................................................34

3.9 Data Analysis ....................................................................................................35

3.10 Ethical considerations ......................................................................................36

CHAPTER FOUR ...................................................................................................37

DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF RESULTS ........37

4.0 Introduction......................................................................................................37

4.1 Demographic characteristics of the Respondents .................................................37

4.2 Corporate governance .......................................................................................38

4.3 Financial performance of commercial banks ........................................................44

4.4 Objective one; effect of transparency on financial performance of commercial banks

in Mogadishu Somalia..............................................................................................45

4.5 Objective two; the effect of accountability on financial performance of commercial

banks in Mogadishu Somalia....................................................................................47

4.6 Objective three; effect of board composition on Financial performance of

commercial banks in Mogadishu Somalia ..................................................................49

4.7 Multiple Linear Regression .................................................................................50

CHAPTER FIVE.....................................................................................................51

DISCUSSIONS, CONLUSIONS AND RECOMMENDATIONS................................51

5.0 Introduction......................................................................................................51

5.1 Discussions on findings......................................................................................52

5.1.1 Objective one; the findings on effect of transparency on financial performance of

commercial banks ...................................................................................................52

5.1.2 Objective two; the findings effect of accountability on Financial performance of

commercial banks ...................................................................................................54

5.1.3 Objective three; the findings effect of board composition on ofinancial

performance of commercial banks............................................................................55

5.2 Conclusions.......................................................................................................56

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5.2.1 Objective one; the effect of Transparency on financial performance of commercial

banks .....................................................................................................................56

5.2.2 Objective two; the effect of accountability on financial performance of

commercial banks ...................................................................................................57

5.2.3 Objective three; the effect of board composition on financial performance of

commercial banks ...................................................................................................57

5.3 Recommendations.............................................................................................58

5.4 Contribution to knowledge ....................................Error! Bookmark not defined.

APPENDICES..............................................................Error! Bookmark not defined.

APPENDIXES I: QUESTIONAIRE..................................Error! Bookmark not defined.