BOARD DIVERSITY, SOCIAL CAPITAL AND COMPETITIVE ADVANTAGE OF COMMERCIAL BANKS IN KENYA

Abstract

Competitive advantage is the unique combination of elements within the business model which enables a firm to better satisfy the needs in its environment, earning economic rents in the process. The objective of this study was to evaluate the mediating effect of social capital on the relationship between board diversity and competitive advantage of commercial banks in Kenya. Few commercial banks in Kenya especially tier one banks have gained competitive advantage compared to their peers in tier 2 and tier 3. Some tier 2 and 3 banks have experienced sudden unexpected systemic collapse with a number of mergers and buy-offs ensuing. Some studies have attributed the lack of competitive advantage in Kenyan commercial banks to violation of banking laws such as lacking board diversity. Other studies done on the effect of board diversity on competitive advantage have shown varying contradictory findings. This study postulates that social capital could be playing a mediating role in the nexus between board diversity and competitive advantage. The study was guided by stakeholder theory. The research adopted descriptive as well as correlational research designs. Target population for this research comprised the forty-two commercial banks operating in Kenya while the respondents were heads of corporate departments of these banks. The research approach was census survey which covered all the elements in the target population. Questionnaire was the tool of data collection. Reliability of the questionnaire was confirmed using Cronbach alpha. A reliability coefficient of 0.7 and above is the rule of thumb and was used as benchmark for approving the reliability of the instruments. SPSS was used to aid in data analysis. Data analysis of collected data involved a combination of descriptive and inferential statistics. Multiple regression analysis as well as Pearson product moment correlation analysis was utilized to test the nexus between the independent variables and the dependent variable. The variables were regressed using 5% significance level to find out the strength of the variables and direction of their relationship. Study results indicated statistically significant direct effect between board diversity and competitive advantage (β = .440, t = 8.571, p = .000). Furthermore, the study showed that social capital had a significant mediating effect on the relationship between board diversity and competitive advantage (M1 = .280, SE = .034, 95% CI = [.216, .351]). The study is of value to commercial banks in Kenya because the research has confirmed the mediating effect of social capital on the association between board diversity and bank competitive advantage. The banks might use the results of the study to design a framework that will catapult the bank to competitive advantage and in turn promote economic growth by adopting board diversity and social capital simultaneously to achieve competitive advantage.

Keywords: Competitive advantage, Board Diversity, Social Capital