The Impact of Corporate Governance, Risk Management Efficacy, State Regulation on Commercial Banks Financial Performance in Kenya

Abstract

Commercial banks are central to financial intermediation, economic stability, and private-sector growth, yet their performance remains sensitive to governance quality, risk exposure, and the regulatory environment. This paper develops an integrated framework for examining how corporate governance affects the financial performance of commercial banks in Kenya through risk management effectiveness and under varying levels of government regulation. The paper is grounded in Agency Theory, Institutional Theory, and Enterprise Risk Management Theory. It synthesizes prior evidence on board structure, ownership, transparency, risk controls, prudential regulation, and bank profitability and identifies a Kenyan empirical gap arising from the tendency to examine these relationships independently. The proposed study adopts a pragmatic philosophy and a sequential explanatory mixed-methods design. The quantitative phase would use a structured five-point Likert-scale questionnaire administered to managers, risk officers, finance officers, internal auditors, and compliance officers in licensed commercial banks. A pilot study would assess validity and reliability, with Cronbach’s alpha of at least 0.70 treated as acceptable. Quantitative analysis would combine descriptive statistics, correlation, multiple regression, mediation and moderation analysis using Hayes’ PROCESS macro and structural equation modelling, supported by diagnostic tests. A qualitative phase would use semi-structured interviews to explain and triangulate the quantitative relationships. The paper argues that governance is unlikely to influence bank performance in isolation; instead, the quality of internal risk-management systems and the strength of regulatory institutions are expected to shape the magnitude and direction of that relationship. The proposed framework provides a coherent basis for empirical testing and offers implications for boards, regulators, and bank managers seeking stronger resilience and sustainable financial performance.