Effect Of Corporate Governance On Audit Quality Of Commercial Banks Listed At Nairobi Securities Exchange

Abstract

This study aimed to explore the effect of corporate governance on audit quality within the context of commercial banks listed at the Nairobi Securities Exchange. More specifically, the study sought to determine the effect of board independence on audit quality of commercial banks listed at NSE; ascertain the effect of board diversity on audit quality of commercial banks listed at NSE; and establish the effect of board compensation reviews on audit quality of commercial banks listed at NSE. Grounded on the Stewardship, Agency and Stakeholder theories, the study adopted quantitative approaches. The target population for this study was the 12 commercial banks firms listed at the NSE, on which a census was conducted. The data collection approach for this study was the use of systematic review of reports and company documents from the sample of commercial banks listed in the NSE between the tracking period 2018 to 2022 was done. Both descriptive and logistic regression analyses were conducted. Results indicate that board independence (B = 3.214, df = 1, p < .001); board diversity (B = -2.347, df = 1, p < .001); and board compensation reviews (B = 1.892, df = 1, p < .001) have a significant effect on audit quality. This finding suggests that, within the context of NSE-listed commercial banks, board independence, board diversity and board compensation directly influence audit quality outcomes. It is recommended that policymakers and regulators should focus on enhancing regulatory oversight mechanisms to ensure robust governance practices within commercial banks. This includes developing clear guidelines and standards for Board Compensation, independence, diversity, and compensation practices. Regular assessments and audits should be conducted to ensure compliance with these standards and to identify areas for improvement.