Capital Structure and Corporate Governance of Commercial Banks Listed at the Nairobi Securities Exchange
Nahashon Njoroge Gathai *
Department of Accounting and Finance, Kenyatta University, Nairobi, Kenya.
Moses Aluoch
Department of Accounting and Finance, Kenyatta University, Nairobi, Kenya.
*Author to whom correspondence should be addressed.
Abstract
The global banking sector has undergone significant transformation due to liberalisation, technological advancement and regulatory change, increasing the importance of corporate governance and capital structure management. The global financial crisis exposed weaknesses in governance and capitalisation, leading to stronger regulatory frameworks. In Kenya, bank failures have further emphasised the need for effective governance and adequate capital management. Guided by agency theory, this study examines how debt, equity and capital adequacy influence corporate governance among commercial banks listed at the Nairobi Securities Exchange, with implications for financial stability and regulatory practice.
The study adopted a positivist philosophy and a causal-comparative research design to examine the relationship between capital structure and corporate governance among eleven commercial banks listed at the NSE. Using census sampling, panel secondary data from 2019 to 2024 annual reports and regulatory disclosures were analysed. Capital structure was measured through debt, equity and capital adequacy, while governance was assessed using a Corporate Governance Index. Descriptive statistics and panel regression analyses, supported by diagnostic tests, were applied to ensure reliable and valid findings.
The study examined the relationship between capital structure and corporate governance among commercial banks listed at the Nairobi Securities Exchange from 2019 to 2024. Descriptive results revealed variations in debt, equity, capital adequacy and governance practices. Diagnostic tests confirmed the suitability of the regression model. Regression findings showed that debt, equity and capital adequacy significantly and positively influenced corporate governance, explaining 71.8% of governance variations. The results indicate that effective capital structures may enhance accountability, oversight, financial stability and governance effectiveness among listed banks.
Keywords: Capital structure, corporate governance, commercial banks, capital adequacy, equity financing, debt financing, board oversight, financial stability