Corporate Governance: A Case of Kuwait Finance House

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Corporate Governance:

A case of Kuwait Finance House

Contents

Summary:

Chapter 1:

Introduction:

Background of the study:

Research objective:

Research problem and question:

Research source of data:

Scope and limitation:

Significance of study:

Chapter 2:

Literature review:

Chapter 3:

Research design:

Sources of data:

Purpose and research questions or null hypothesis:

Sample size:

Assumptions:

Questionnaire:

Bibliography

Summary:

In this study we are going to have a look at the corporate governance of Kuwait finance house. As a market leader, it envisaged the revolutionary Financial Mall conception, placing partners such as credit card providers, telecommunication and insurance needs under one roof. The Financial Malls are providing customer-convenient services, personal financial advisors and queue beating automated systems.

The paper aims to talk about the major impediment faced by Kuwait finance house and the conflicting interest of the shareholders with the interest of the managers became one of the main causes of the rise of need for corporate governance. The study can define its economy as it is an important edifice or pillar of Bahrain Economy. In the planned study descriptive research get used . Descriptive research studies are conducted when the characteristics of certain groups are to be described. In the study we will try to get at least 25-30 fully completed questionnaires.

Many employees, customers and shareholders having many types of accounts are current, saving, loan, debit and credit card. Loan facilities, O/D facilities, and ATM facilities are following facilities is given more importance. It conducted recreational facilities for its customers or employees. The study recommends the banks to involve customers or customer representatives before investing on any internal growth. The bank recently added various technological upgrades with a view to give high level and latest upgrades service as required in the changing world of today.

The study recommends the banks to involve customers or customer representatives before investing and the aim is to figure out the possible causes of conflict between the managers and shareholders and why there actually exist the need of corporate governance. Thus the bank has a separate clause in their objective mission statement that clearly defines the creation of wealth for the shareholders. The possible causes of conflict between managers and shareholders will eventually affect the growth of total assets, shareholders equity and customer deposits, all are extremely important financial indicators for financial institutions.

Chapter 1:

Introduction:

In this study we are going to have a look at the corporate governance of Kuwait finance house. It has developed to become the largest commercial bank in the Kingdom of Bahrain. For the past 35 years, it has introduced cutting-edge technologies providing customers with a wide variety of products ranging from individual banking services, treasury and investment, to innovative commercial-focused solutions.

Background of the study:

The Corporate governance is key need of present day world. The different interest of the people in the companies and expectation for the appropriate actions by the companies has led to the rise of the concept of corporate governance. Thus the conflicting interest of the shareholders with the interest of the managers became one of the main causes of the rise of need for corporate governance.

In this case study we will take into view the Kuwait Finance House. Kuwait Finance house is one of the leading and respectable banks in the Kingdom of Bahrain. The bank offers commercial and investment banking facility. The bank was established in year 2002 as a wholly owned subsidiary of Kuwait Finance house, Kuwait. The bank became fully accomplices with the rules of Sharia and offers a variety of products and service as per the rules of Sharia. History shows that in the past decade it has seen an amazing transformation with development across all spheres be it technology, industry, education, health; as well as in the quality of life itself. We can hence summarize that in the world of finance, it have emerged as a truly world-class bank incorporating next generation technology, with an international presence and a wide local network. The bank recently added various technological upgrades with a view to give high level and latest upgrades service as required in the changing world of today. Thus the bank has the following objectives as mission.

  1. To provide customers with the latest technological upgrades and support to assist they well.
  2. To provide products and services as per the Sharia rules and principles.
  3. To create a wealth and asset for the shareholders.

Thus the bank has a separate clause in their objective mission statement that clearly defines the creation of wealth for the shareholders. (Kuwait Finance House, 2014)

Research objective:

The aim of the research is to figure out the possible causes of conflict between the managers and shareholders and why there actually exist the need of corporate governance. Thus the objectives can be stated as below.

  1. Identifications of possible causes of conflict between managers and shareholders.
  2. Stating how corporate governance helps in decreasing the level of conflict between the managers and shareholders.
  3. Showing the importance of corporate governance.

Research problem and question:

The research questions include the questions regarding the interest of managers and shareholders in the company. Thus the following questions can be reached.

  1. How efficient is the corporate control in Kuwait finance house?
  2. How the conflict between interests actually rises in Kuwait Finance House?
  3. What factors affect the corporate governance effectiveness at in Kuwait finance house?

Research source of data:

The data will collected from primary sources in the form of a questionnaire that will be circulated on the managers and shareholders of the Kuwait finance house. The Secondary sources will include previous studies and researches, book and magazines, and online resources and other secondary sources which will also be utilized.

Scope and limitation:

The scope of the research is to identify the possible causes of conflict between the managers and shareholders and why there actually exist the need of corporate governance. The study will be conducted on Kuwait finance house. No other sample shall be used to conduct this research. The main limitation is that the researcher must submit the study results before the end of the course to pass the course requirement.

The limitations of the study are summarized in the following:

  1. Small population and sample size utilized in the study.
  2. A short period during which the research must be done and submitted (one semester period).
  3. No funds to be utilized to conduct the study.

Significance of study:

The significance of the study is for the corporate governance of Kuwait finance house. That is it can understand the reason behind the trend of using the services. While it can identify their flaws and work together to end the drawbacks and bring back the common people for whom the service was actually started. The study is also significant for research for the academic students so that they can help officials identify their mistakes and work to improve them.

Chapter 2:

Literature review:

Corporate governance is actually the allocation of ownership, its incentive schemes, and concerns regarding board of directors and consists of various market competitions. Thus it consists of all those matters that are related with the company. (Becher & Campbell, 2004) Another definition is that corporate governance is a set of mechanism that helps the outsider that is the shareholders protect their interest from the insiders that is the managers. Thus it is a method through which the shareholders can safeguard their interest and thereon investment in the company. These way objectives are set, performance is monitored and preferred outcome is achieved by the shareholders. Literature has shown that there exist a number of challenges and issue related to corporate governance that should be addressed. Reviewed the presentation of non-financial corporation in United States and Asia which were non efficient enough to show their commitment and transparency toward corporate governance. They found that the modern concepts related to the separation of management from the ownership have made the corporate governance an important issue in the present day world. There exist a big difference between those people who control the company and the one who finance it. Thus the organization system, practice and rules all together can help determine the relation between the two parties. The balance that is created will help in bringing the optimal outcome where both the investors and the managers would feel that their interests are accomplished. (Farinha, 2003) Found that the reason for conflict between the investors and the managers is due to the ownership mechanism. The value of a firm is of a great concern for the investors. Whereas achieving sales target and growth are some of the few objectives of managers. Thus the difference in the objectives results in the clash of the interest between the two groups of the company. The earlier tries to increase their wealth through the investment they have made, while the latter tries to accomplish company goals and achieve sustainable growth. Mentioned, that the publically listed companies and family controlled firms in Taiwan are among the best example which shows the conflicting interest of the investor and managers through corporate governance. Although these firms were run for the growth objective they showed lesser conflict among the owners and managers. Reason being that the work environment in Asia and Eastern countries is much different from the European and American markets. The increase in the number of foreign financial institutions in the local market increased the competition. Many banks ventured into lending business that are too perilous only to maintain their standing in the competitive market.

John M. Mason (2012), Banks: How Safe Is the Banking System?

The writer speaks about the commercial banking system prevailing in USA. The commercial banking system which prevails in USA does not found to be “out-of-woods” due to the fact that 15 largest banks out of the 19 largest banks have passed a stress test which was conducted by the Federal Reserve.

The authors also insist that the gap between the estimated capital and the Federal Reserve’s capital must be understood by the healthy financial institutions. This gap identification was suggested by the customers of the banks. Mark to market accounting is the real problem faced by the financial institutions. Mark to market accounting is not preferred by the executives in the commercial banks. The basic reason behind this is the executives do not like to accept that they have done a mistake or they do not want to take high risks or they want to stay away from the cluttered issues. When the sourness of the loan, change in the interest rates and decline in the securities market value are the factors which leads to decline in the value of bank assets. In order to identify the performance, the banks should mark their assets to market so that they would get the real pictures about the performance of bank and its solvency. (Mason, (2012))

H Reddy (2004), Global business and innovation in banking

The author cites that the banking sector is known about the uncertainty, adopting the changes in the technology for developing their product and services to satisfy their customers. The opportunities of arbitrage are found everywhere which includes cheap settings and strategies which are related to business. The retail banking sector was examined in this study to find out how some banks earn sustainable profits than the other banks. The author suggests as banking is emerging as a commodity business it would be suitable to analyze the business strategies found in this dynamic sector. A study was set out to find the different positioning of a Delta Model and also to find the effect of fundamental interactions. The right business strategy is put into operation by analyzing customer targeting and operational effectiveness. (Reddy, (2004))

The author mentions that the banks which invented this method of doing business tasted greater success due to their preliminary success. The author further adds by luring away the customers they have become a successful player in the competitive market. In order to exhibit their ability in the big market some of the banks made clients to go for off shore deposits. The value of a firm is of a great concern for the investors. (Piesse et al., 2004)

Chapter 3:

This chapter emphasizes various research methods and tools used in the study. It also discuss about the data collection methods, tools used to gather data, research methodology and data analysis.

Research design:

The research is designed as a qualitative research type in the form of the questionnaires and other secondary sources of data. The attempt was made to keep the secrecy and clarify the questions to the respondent before the filling of the questionnaire. Moreover a questionnaire format will be built to get answers to the questions related to our topic corporate governance. Also the interview questions were designed to maintain secrecy of the identity of the person. In this research the researcher will use objective and subjective method both to analyze the present day situation in the KFH. Also an attempt will be made to know more about the corporate governance system working in the Bank. The intention here is to find out the causes of conflict and suggest a possible method to resort to the peaceful out comes. Thus the research is based on the concept of finding out various objectives of the company if accomplished through the corporate governance and if the peace is resorted between the conflicting interest of the managers and shareholders.

Sources of data:

There are two types of data in any research, primary and secondary data. In this report the researchers have used the primary source of data through distributing questionnaires along with a secondary source of data is used.

Primary data: This is gathered through primary data research. In this paper the researcher held a survey via distribution of questionnaires of the study sample. This consists of original information collected for specific purpose. A researcher collects the data to study a particular problem. These data are the raw materials of the enquiry.

Secondary data: This is gathered through secondary data research. In this paper the researcher used journals, survey reports, books and online resources. For instances, data collected during census operations are primary data to the department of census and the same data, if used by a research worker for some study are termed as secondary data. Here it deals with the research design, data sources, instrumentation, procedure for gathering data and the data analysis.

Purpose and research questions or null hypothesis:

The purpose of the study is to figure out the possible causes of conflict between the managers and shareholders and why there actually exist the need of corporate governance. Thus the research question and Hypotheses are:

Questions of the study

  1. How efficient is the corporate control in Kuwait finance house?
  2. How the conflict between interests actually rises in Kuwait finance house?
  3. What factors affect the corporate governance effectiveness at in Kuwait finance house?

Hypotheses:

  1. There is an invert relationship between the effectiveness of corporate governance of the KFH and conflict of interest between managers and shareholders.
  2. There is a positive relationship between the effectiveness of corporate governance of the KFH and conflict of interest between managers and shareholders.
  3. There is a negative relationship between the effectiveness of corporate governance of the KFH and overall performance of KFH.
  4. There is a positive relationship between the effectiveness of corporate governance of the KFH and overall performance of KFH.

Sample size:

In the study we will try to get at least 25-30 fully completed questionnaires.

Assumptions:

The study measures the corporate control in Kuwait finance house; the conflict between interests actually rises in Kuwait finance house; the factor affect the corporate governance effectiveness at in Kuwait finance house and also looks at the challenges which the banks face. Questionnaire is the main instrument used to obtain primary data through a survey which provides an off-centre view of corporate governance of Kuwait finance house. To a certain extents the survey verifies the limitations and drawbacks faced by the corporate governance of Kuwait finance house. A subjective view point is obtained from the primary data. The facts get validated and the data from the internet acts as the secondary data.

Questionnaire:

Dear Sir\Madam,

I am as a student doing a research on corporate governance of Kuwait finance house. It will be highly appreciated it you can help me find out the real cause behind the shift by responding to following questionnaire wisely.

  1. Gender:
  1. Male (b) Female
  1. Age:

(a)19 to 25 years (b)26 to 35 years (c)35 to 50 (d)51 years and above

  1. Education:

(a)Under Graduation (b) Masters (c) Higher

  1. Do you consider it as customer friendly?
  1. Yes (b) No (c) Not Aware
  1. Rank the major consumers?
  • Institution/companies
  • Individuals
  • Building promoters/construction companies
  • Government agencies
  • Small contractors
  1. Do you have an account with KFH?

(a) Yes (b) No

  1. What kind of account do you maintain? (a) Savings (b) Current (c) Credit card (d) Demit (e) Loan a/c
  1. What kind of facilities is given more importance? (a) ATM (b) O/D (c) Loan
  1. Does it conduct any recreation facilities for its customers or employees? (a) Yes (b) No
  1. Do the customers have the core banking facility?

(a) Yes (b) No

  1. Do they charge unnecessarily for not maintain minimum balance in your account? Does it offer competitive service charges? (a) Yes (b) No
  1. Does it offer competitive interest rate? (a) Yes (b) No
  1. Do you prefer the service of alternative bank? (a) Yes (b) No
  1. What do you feel about overall service quality? (a)Excellent (b) normal (c) good (d) average (e) poor
  1. Would you recommend it to your friends, relatives, associates? (a) Yes (b) No
  1. When do you think of it what comes first in your mind? (a) Personal service (b) network(Wide branch) (c) Customer service (d) computerized banking (e) Core banking
  1. What would you like to suggest for the changes or improvement in any of the services provided by it?

Thank you.

Bibliography

Becher, D.A. & Campbell, T.L., 2004. Corporate governance of bank mergers. Journal of Financial Economics Volume 51 no. 3, pp.371-406.

Farinha, J., 2003. Corporate Governance: A survey of the literature. Journal of Economics 118, pp.107-55.

Kuwait Finance House, 2014. About us. [Online] Available at: http://www.kfh.bh/en/kuwait-finance-house/about-us.html.

Mason, J.M., (2012). Banks: How Safe Is the Banking System? [Online] Available at: http://www.bullfax.com/?q=node-commercial-banks-how-safe-banking-system [Accessed 15 March 2014].

Piesse, J., Lien, Y. & Filatochev, I., 2004. Corporate Goverance and Performance in Publically listed, Family controlled Firms: Evidence from Taiwan. London.: King's College of London.

Reddy, H., (2004). Global business and innovation in banking. [Online] Available at: dspace.mit.edu/bitstream/handle/1721.1/17882/56657909.pdf?. [Accessed 15 March 2014].

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