Effect Of Corporate Governance On Financial Performance Of Cross-Listed Firms In East Africa Community Securities Exchanges

Abstract

The objective this study is to investigate the effect of corporate governance on financial performance of cross-listed firms in East Africa community securities exchanges. The study utilized secondary data that was collected from respective firms and their websites. The sample of the study was five cross-listed firms that were listed in the Nairobi Stock Exchange and a five-year data was collected from 2011 to 2015. Regression and correlation analysis was utilized in analyzing the secondary data that was collected. The study established that cross-listed firms in East Africa community securities exchanges have no CEO duality since the role of the CEO and the board chair were found to be clearly separated. There were small variations among the firms as far as board composition and size and ownership structure and control were concerned. Moreover, all the firms were owned by shareholders. In addition, the range for the number of directors was between 8 and 17. Furthermore, there were significant inverse relationship between return on assets and ownership structure. In addition, there was strong positive relationship between ROA and board size and composition. Multivariate regression results revealed that corporate governance accounts for 50.2 percent of the ROA of cross-listed firms in East Africa community securities exchanges. The implication of this is that; the independent variables of board size and composition and ownership structure explain 50.2 percent of the variance in the financial performance of cross-listed firms in East Africa. The study recommended that cross-listed firms in East Africa community securities exchanges should seek always to improve their corporate governance practices since they account for significant portion of their financial performance. However, further research will be required on the same topic but over a longer duration of time such as 20 years. A comparative study may also be done to compare companies in other countries as well as replicating the study after another five years to observe the trend.