Effect of internal factors on financial performance of banks listed at the Nairobi securities exchange

Abstract

This study seeks to establish the effect of internal factors on financial performance of banks listed at the Nairobi securities Exchange in Kenya. The study focussed on all 11 banks that are listed at the Nairobi securities exchange over 8-year period from year 2009 to year 2016. The study used panel data regression model to analyse the panel data. The researcher carried out various diagnostic tests to rule out the problems of autocorrelation, multicollinearity and heteroscedasticity. Hausman test revealed that random effects model was to be used in this study. The study findings indicate that management efficiency is significant and is positively correlated with return on assets while earnings ability is positively related but insignificant. Capital adequacy, Asset quality and liquidity were found to be insignificant and negatively related to return on assets. Management efficiency and earnings ability which are both positively correlated to performance of commercial banks should be given adequate attention in terms of resource provision and monitoring. By doing so performance of banks listed at the Nairobi Securities Exchange shall improve and this will attract more investors in the Securities market and ultimate growth in the economy as there will be a multiplier effect. The finding of this study agrees with some of the previous researchers and differs with other researchers