The Effect of Corporate Governance on the Financial Performance of State Owned Enterprises (SOEs) in Kenya

Abstract

Recent events leading to the collapse of high profile corporation in the global arena has led to increased advocacy for corporate governance practice across the world. Specifically, failure by State owned Enterprises in many developed and developing nations has prompted concerted efforts towards corporate governance in the public sector. This study informed by this problem studied the corporate governance attributes verses financial performance of SOEs in Kenya. The guiding objectives were; to determine the corporate governance attributes amongst the SOEs in Kenya, to investigate the trends of performance of SOEs in Kenya and to find out the effect of corporate governance attributes on performance of SOEs in Kenya. The study used correlation research design to achieve these objectives. The population of this study comprised the SOEs as defined in the State Corporations Act. The researcher opted to limit the scope of the study to Nairobi where there are 70 SOEs and narrowed to those that are commercial. Out of these 43 were commercial SOEs. For each of the commercial SOEs, one respondent was covered. The respondents included heads of SOEs and chief financial officers. Correlation and regression analysis approaches were used to analyze the data. From the analysis, the study established that the findings from this study were in line with the relevant literature with all the variables showing positive relationship with financial performance. This was shown by the fact that all the study variables which were ownership structure, board independence, board size and board composition had positive relationship with the independent variable (ROA) which measured financial performance. Based on these findings, the study conclusion was that ROA is a good aspect for measuring financial performance. The study also concluded that there is a positive and significant relationship between, board independence, ownership structure, board size and board composition with financial performance in terms of ROA. Therefore if SOEs in Kenya are to improve their performance they should direct their efforts towards these variables.The study recommended that the treasury should have a seat in the boards of SOEs in Kenya and that the board size of individual SOEs should be pegged on the organization‟s size.