The Impact of Board Structure on Share Returns of Listed Companies at the Nairobi Securities Exchange

Abstract

Board structure is the composition and assignment of roles to the members of the board of an organization. It involves putting in place the right people and the right balance in the board of directors in order to work towards satisfying the various stakeholders of a firm. This study therefore sought to determine the effect of the board structure on the financial performance of companies in the Nairobi Securities Exchange. The study adopted a descriptive research design and the population was made up of all the 63 companies listed in the NSE as at 31st December 2016. Secondary data was collected from published annual reports and websites of the selected Companies for a period 5 years from 2012 to 2016. Descriptive statistics was used in the analysis of the data, regression and correlation analysis will be done in order to determine the relationship and the significance of the analysis. The results revealed that the there was a significant and positive relationship between board size and share returns and that there was a negative and significant relationship between board composition and share returns of the listed firms at the NSE. The relationship between CEOs conflict of interest and share returns of the listed firms was found to be negative and insignificant. The findings also found that the relationship between board diversity and share returns of the listed firms was negative and significant while the relationship between dividend payout and share returns of the firms is significant and positive. Finally, the results established that the relationship between return on assets and the listed firms share returns was negative and significant. The study concluded that board size, board composition, board diversity, dividend payout, financial performance significantly affects share returns of listed firms. The study recommended that listed firms should ensure that they have an optimal board size had well balanced board with many independent directors and ensures that that there boards are well diversified.