The effect of board diversity on financial performance of companies listed in the Nairobi securities exchange
Abstract
Kenyan firms have in past years experienced several corporate failures which are said to be related to corporate governance structures. The issues facing Uchumi and Kenya Airways is an indication that even listed firms are not insulated from this corporate failures. Although there are many studies carried out locally on corporate governance and financial performance, most of these researchers however have not tried to explore effect of board diversity on quoted firms‟ financial performance at the NSE. The aim of the study was to establish the effect of board diversity on financial performance of the quoted firms at the NSE. The population of the study was all the 65 firms quoted at the NSE as at 31st December 2017. Data was obtained from 58 out of the 65 listed companies giving a response rate of 89.23%. The independent variable for the study was board diversity as measured by gender, average age and the nationality of the board members. The control variable was leverage measured by the ratio of total debt divided by total assets and firm size as measured by natural logarithm of total assets. Financial performance was the dependent variable which the study sought to explain and it was measured by ROA.. The descriptive cross-sectional research design was employed for the study and the association between the study variables established using multiple linear regression model. Data was analyzed using the SPSS software. The results of the study produced R-square value of 0.165 which means that about 16.5 percent of the variation in the financial performance of companies quoted at NSE could be explained by the five selected independent variables while 73.5 percent in the variation of financial performance of was associated with other factors not covered in this research. The study also found that the independent variables had a weak correlation with financial performance (R=0.403). ANOVA findings show that the F statistic was significant at 5% level with a p=0.000. Therefore the model was fit to explain the association between the selected variables. The results further revealed that firm size produced positive and statistically significant values for this study while leverage produced negative and statistically significant values for this study. The study found that gender of board members, age of the board members and nationality of the board members are statistically insignificant determinants of financial performance of firms at the NSE listing. The study‟s recommendations were that measures should be put in place to enhance firm size as this will improve financial performance of companies at the NSE listing. In addition, leverage should be kept in check as high leverage was noted to negatively influence the firm‟s financial performance.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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