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

Abstract

Researchers have carried out many researches on the concept of corporate governance and there is a consensus that it contributes to efficiency and economic growth of firms and countries. Corporate governance is considered as the most efficient way of supervising the operations of a firm and ensuring the main goal of a firm to maximize shareholders’ wealth is taken care of. Corporate governance can also be used to reduce misconduct by organizations and enforcement of policies and decisions aimed at securing rights of shareholders and other stakeholders. The study’s aim was to establish the impact of corporate governance on the performance of firms at the NSE listing. The data collected from the of directors and the senior level managers of the firms was analysed using frequencies, means, percentages, and SD and then presented using figures and tables. The study established that smaller boards enhance firm performance although bigger boards are more adept at providing resources. However, the study observed that larger board of directors have to tackle more conflicts among the board members and thus experience challenges in reaching consensus. The study further established that boards of firms listed at the NSE are diverse in terms of gender and that the appointment of board members considers a mix of skills required in the stewardship of the organization such as education and industry experience. The study also established that the boards of firms listed at the NSE are independent since they vave more non-executive directors than the Executive directors and therefore adds value to the firms since they have attachment to the firms. Further, the study found out that the presence of independent committees and the number of board meetings held annually enhances financial performance of the organization listed at the NSE. The study concluded that there is a strong relationship between corporate governance and firm performance of the firms a the NSE listing. Corporate governance accounts for 52.3% of firm performance of the companies at the NSE listing. This study suggests that the shareholders should promote board diversity, promote independence of audit committees and increase the frequency of the board meetings as this translate to improved firm performance. The study also recommends that the shareholders of listed firms should keep the number of independent directors higher than the insiders as this allow them to make appropriate and non-partisan decisions.