EFFECT OF SELECTED FIRM-LEVEL CHARACTERISTICS ON FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN NAKURU TOWN, KENYA
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The performance of commercial banks in Kenya has been hindered by various internal and external factors. The fact that commercial banks have been facing challenges in respect of their financial performance necessitated the carrying out of this study. The general objective was to determine the influence of selected firm-level characteristics on financial performance of commercial banks in Kenya. In particular, the study examined the influence of the bank size, business scope, managerial characteristics, and bank‟s tangibility on the financial performance of the commercial banks in Nakuru town. The study was guided by neoclassical theory of the firm, theory of firm scope, agency theory and pecking order theory of capital structure. A descriptive research design was adopted. The study used quantitative research approach. The target population included all the finance, accounts and the management staff working with the 28commercial banks in Nakuru. The 121finance, accounts and management staff working with the commercial banks in Nakuru town constituted the study population. A sample of 58 respondents was obtained using stratified random sampling technique. A structured questionnaire was employed to facilitate data collection. A pilot study was conducted prior to the main study with the view of determining both reliability and validity of the questionnaire. Requisite permits, authorization letter, approval and consent were obtained prior to data collection. The collected data was analyzed by using both descriptive and inferential statistics with the aid of the Statistical Package for Social Sciences programme. Descriptive statistics encapsulated measures of distribution, measures of central tendencies, and measures of dispersion. The inferential statistics was employed Pearson‟s correlation coefficient and multiple regressions. The results of the analyses were presented in form of tables. The study observed and adhered to the necessary ethics over the entire duration of the study. From the results the study established that there exists a strong positive and significant relationship between bank size and financial performance of commercial banks in Nakuru town. (r = .641, P=0.000). In addition the findings indicated that there exists a strong, positive and significant relationship between business scope and financial performance of commercial banks in Nakuru town (r=0.619, P=0.023). The findings also indicated that there exists a strong, positive and significant relationship between managerial characteristics and financial performance of commercial banks in Nakuru town (r=0.597, P=0.018). Finally the findings indicated that there exist a strong, positive and significant relationship between bank‟s tangibility and financial performance of commercial banks (r=0.604, P=0.032). From the findings the researcher recommends that banks should subscribe to reliable internet providers for effective and efficient service delivery. The study further recommends that customers should be enlightened on the operation of agency banking in order to enhance their confidentiality. The researcher suggested that further studies should be conducted on business process re-engineering on financial performance of other financial institutions. Further studies should consider investigating other factors not covered in this study which accounts for 61.2%.