The Effect of Corporate Governance on Financial Performance of Investment Firms Listed at the Nairobi Securities Exchange

Abstract

This paper examined the effects of corporate governance on the financial performance of investment firms in Kenya listed at the Nairobi Securities exchange. Through the research multiple corporate governance variables were examined; board size, board composition, board committees, board meet-ings and board gender diversity. The variable employed to measure financial performance was Re-turn on Asset. A descriptive design was used in this study. The population involved in this study was all the 7 investment firms listed at Nairobi Securities Exchange (NSE) in Kenya for the period 2012 to 2016 which is believed to be long enough to provide a justified and rigorous regression analysis. Secondary sources were used to obtain information; data from the firms’ published annual financial reports and from the NSE. The findings of the study show that the bigger the size of the board, the less effective the board in monitoring and the higher the agency cost. From the regression analysis, board size was found to negatively affect the financial performance of the investment companies listed at the NSE as it had a coefficient of – 6.46. On the effects of board composition and board committees on the financial performance of the listed firms, the study established that they affect the financial performance by a factor of 106.75 and 2.67 respectively. The study thus concludes that composition of the board and board committees positively influence financial performance of listed companies. There was no significant relationship between ROA, board meetings and board gender diversity