This study sought to determine the effect of corporate governance on financial stability of Commercial Banks in Kenya. The study applied a descriptive research design. Descriptive research includes surveys and fact finding to ensure that the research problem is effectively addressed. The target population of this study was all the commercial banks in Kenya, looking particularly at their financial reports for a five year period (2011-2015). Due to the population size, census survey was used. The study relied on a five year (2011-2015) secondary data from the CBK bank supervision annual reports and the Kenya Institute for Public Policy Research and Analysis (KIPPRA) – Kenya Economic reports. The data extracted was analysed using descriptive statistics, correlation analysis, and panel multiple regression analysis. The multiple regression analysis was done using Statistical Package for Social Sciences (SPSS). Findings reveal that a majority of the commercial banks surveyed observe various corporate governance practices with respect to the board structure with a view to enhance financial stability in respective firms. It was also found that various measures are in place to ensure that management-shareholder conflict does not negatively affect the financial stability of respective commercial banks. The study further established that the regulatory environment in the country is keen on ensuring that commercial banks operating in the country are financially stable. Findings further revealed that a majority of the commercial banks surveyed observe a formalized organizational structure with respect to flow of command and decision making. In conclusion, with an adjusted R-squared of 0.594, the model shows that board structure, Management-shareholder conflict, Regulatory environment and Organizational structure explain 59.4 percent of the variations in the Performance while 40.6 percent is explained by other factors not part of the mode.

Key Terms: Corporate Governance, Board Structure, Management-Shareholder Conflict, Regulatory Environment, Organizational Structure, Financial Instability


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