Abstract:
This study sought to establish the relationship between firm size and profitability of commercial
banks in Kenya. The study followed a descriptive research design and used secondary data
obtained from the company annual reports and partly from the central bank of Kenya. Bank size
was measured using annual bank deposits and annual gross loans advanced in a bank while
profitability was measured using the annual net profit after tax for each bank for the five years’
period (2012-2016). Data was collected using secondary data collection sheet from annual bank
supervision reports for the respective period. Data was analyzed using SPSS version 23
through stepwise regression analysis to determine the relationship between each of the
measures of size and profitability of the bank. The data was tested for normality of response
variable, homoskedasticity, multicollinearity and independence. The study established an overall
y and R-Square of 0.790 and 0.624 respectively indicating an overall positive correlation which
is moderately strong. Both regressors were found to be statistically significant. The study concluded that firm size as measured by customer deposits and loans advanced had a positive
relationship with profitability of commercial banks in Kenya. The study recommends that banks
should endeavor to maintain high levels of deposits as they have a strong bearing on the
profitability of banks in Kenya. This conforms to the financial intermediation theory in an active
baking sector.
