The Effect of Board Composition on Quality of Financial Reporting Among Firms Listed in Nairobi Securities Exchange

Abstract

The main purpose of the study was establish the relationship between board composition and quality of financial reporting among listed firms at the Nairobi Securities Exchange. The study objectives was to determine the effect of board size, board independence, frequency of board meetings and presence of audit committees on quality of financial reporting among firms listed at the Nairobi Securities Exchange. The study was guided by the agency theory and institutional theory. The research design used in this study is the cross sectional and explanatory design with a population size of the 46 firms. Census technique was employed in the study and secondary data collected using documentary guide. Both descriptive and inferential statistics were used in analyzing the data. The study established that the board size and presence of audit committee has a positive and significant effect on the quality of financial reporting, while board independence and frequency of board meetings exhibited a negative and significant effect on the quality of financial reporting. Thus, the study concludes that increase in board size and presence of audit committees increases the level of financial reporting quality, while decrease board independence and frequency of board meetings increases the level of financial reporting quality. Therefore, the study recommends that there is need for a large board so that members of the board can distribute the workload and dedicate more of their time to monitoring. There is also need for firms listed in NSE to have at least four meetings in a year. It is also important for firms to have an audit committee so as to enhance the quality of financial reporting.