Corporate Governance, Agency Conflicts, Strategic Choices and Performance of Financial Institutions in Kenya
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The business environment has evolved overtime, especially, over the last few decades registering innumerable developments. These developments include how organizations are directed and controlled, the ownership and financing structure, aligning firms to the environment, stakeholder engagement and gaining competitive edge. Drawing from agency theory one of the firm’s key concern is the separation of ownership and control. This leads to the emergence of corporate governance revolving around the three key organizational stakeholders: shareholders, directors and management. Thus, adoption of good governance is argued to be crucial in stimulating enhanced organizational performance and value. Accordingly, the field of strategic management, more so, the area of corporate governance and its influence on performance has attracted immense research by both the academia and practitioners. These studies have reported divergent results on how the two variables interact, majority recording a positive relationship while others observed nonlinear and non-directional linkage. This implies that the interaction between corporate governance and firm performance is affected by other factors such as the operating environment, stakeholders’ conflicts, organizational culture, strategies adopted among others. It is upon this premise that the study sought to establish the influence of agency conflicts and strategic choices to the relationship between corporate governance and organizational performance. To achieve this, four strategic objectives and corresponding hypotheses were formulated and tested in Kenya’s financial institutions. Through a cross sectional survey, data were obtained from 108 financial institutions using a semi structured questionnaire. Further, data was analyzed using descriptive and inferential statistics. Results indicate that corporate governance significantly enhances organizational performance. Strategic choices were also found to partially mediate corporate governance and firm performance. Overall, the joint influence of corporate governance, agency conflicts and strategic choices on performance of financial institutions in Kenya was found to be statistically significant. However, the independent moderating effect of agency conflicts on corporate governance and firm performance was not statistically significant. Thus, the study concludes that when agency conflicts are mitigated and firms adopt good governance practices that align strategies to the overall firm objectives, optimal performance is achieved. The study contributes to literature by demonstrating that firms can maximize value by adopting good corporate governance. Further, the study suggests that board of directors enhances organizational performance by embracing key strategies that are in line with the mission, vision and operating environment. In addition, board skills were found to be the most important attributes of board members that enhances performance. Limitations of the study entailed the snap shot cross sectional survey, which does not allow observation of variables’ interaction over a long period of time. Further studies are suggested on interrogating the variables interaction in other contexts like manufacturing, mining and agricultural sectors. Moreover, alternative research methods like longitudinal and use of both primary and secondary data are recommended.
university of nairobi
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