Financial Performance 11 It is the process of measuring the results of a firms

Financial performance 11 it is the process of

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Financial Performance 11
It is the process of measuring the results of a firm's policies and operations in monetary terms. It is used to measure firm's overall financial health over a given period of time (Eshna, 2012). Financial Inclusion This is the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost. It is also the universal access to a wide range of financial services at a reasonable cost. These include not only banking products but also other financial services such as insurance and equity products (Malik, 2014) Asymmetric information Asymmetric information is also known as information failure and occurs where one party to an economic transaction possesses greater material knowledge than the other. Information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. 12
CHAPTER TWO LITERATURE REVIEW 2.1 Introduction This chapter reviews the existing literature on the theories of agency banking from previous studies, internet, articles and published journals. Empirical studies were also carried out in the guidance of the research gaps in the previous studies. 2.2 Theoretical Review Theories relating to the research topic were analyzed in this chapter. They include; agency theory concept, the Bank-led theory, Nonbank-led theory of banking and the financial intermediation theory. 2.2.1 Agency theory This theory is primarily adopted in explaining the association or interactions between agents and principals and has been in existence for close to five decades (Mitnick, 2006). It was proposed in the 1960`s and 1970`s with an aim of broadening the issues surrounding risk-sharing and resolution of the agency problem (Jensen & Meckling, 1976). It is directed at the agency relationship in which one party (The Principal) delegates work to the other party (the Agent) who performs the work. It shows the contracts between the owners of economic resources (the 13
principals) and managers (the agents) who are charged with using and controlling those resources. This theory is based on the assumption that principals and agents act rationally (Brigham & Gapenski, 1993) and that agents are more informative than principals. This affects the ability of the principals to effectively monitor their wealth and this is where agents came in. The roles of the principals are to supply capital, to bear risk, and construct incentives while the role of the agents are to make decisions on the principal’s behalf and to also bear risk (Lambert,2002).Agency theory therefore shows the relationship between the banks and the agents and the delegated roles each has towards a positive effect on the financial performance.

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