The Effect of Corporate Governance on Financial Performance of State Owned Corporations in the Service Industry in Kenya

Abstract

Corporate governance has recently gained much focus in Kenya following a series banks collapsing and poor financial performances of the state air carrier considered to be the biggest in Central and Eastern of Africa as many studies look at the effect of corporate governance on financial performance of firms. State owned corporations have constantly been hit by inefficacies and financial mismanagement to the extent of becoming a burden to the government instead of meeting their objectives with good corporate governance practices being highly advocated for as a measure to revitalize them and enhance their performance. This study looked at the correlation between corporate governance and financial performance of state owned corporations in the service industry in Kenya. Financial performance of the state owned corporations was measured return on assets while the corporate governance attributes used included board composition, board size, independence of committees and duality. The study used descriptive research design. The study population was 127 state owned corporations and a sample of 50 was selected for the study. Data were obtained from 35 out of the 50 selected corporations and analyzed using descriptive statistics and multiple regression analysis between the months of September 2016 and November 2016. In summary, the study found a positive correlation between corporate governance and financial performance of state owned corporations. The financial performance was measured using return on assets. This means that practicing good corporate governance enhances the financial performance of state owned corporations. The government using all its policy agencies must therefore ensure that the state owned corporations practice good corporate governance in order to enhance their performance. This study suggests that further studies should cover more corporate governance attributes so that a conclusive analysis of this study can be done. It also suggests that a sensitization of the organizations and firms be done on the importance of research so that resistance during data collection can be reduced.