Effect of Corporate Governance Practices on Financial Performance of Listed Agricultural Firms in the Nairobi Securities Exchange

Abstract

The objective of this research was to determine the influence of corporate governance practices on financial performance in listed agricultural companies in Kenya. The corporate governance practices included board of directors’ composition and size, independence of board and audit committees. The researcher used a descriptive correlation research design to determine the relationship between corporate governance practices and financial performance. The population comprised of all the seven firms that were listed in the Nairobi Securities Exchange (NSE) in the period 2012-2016. The data set comprised of secondary data collected from annual reports. A multiple regression model of financial performance against corporate governance practices was applied. It was found the R2 values were sufficiently less than 0.5 for ROA and ROE implying low predictor power while that of debt equity ratio was high that shows that some companies had violated the CMA Act threshold of three directors in the audit committee while other had poor board composition, also breached was benchmark set by the CMA Act for the independence of directors. The study established that corporate governance practices have no significant influence on ROE and ROA of listed agricultural firms in Kenya. However, it had significant influence on debt equity ratio The findings concur with previous evidence from empirical studies on corporate governance, indicating that adoption of the various corporate governance practices by listed agricultural firms plays a part in the improvement of their performance financially. It was concluded that most agricultural firms had not adhered to the rules and guidelines issued by CMA. The valid model explained moderately the variations in performance of the firms and confirmed that corporate governance practices employed by listed agricultural companies in Kenya influence their financial performance. The study recommends that the Government ought to enforce measures laid down on corporate governance to ensure public organizations are following them