The relationship between board monitoring and performance of the companies listed in the Nairobi Securities Exchange

Abstract

The board is interesting because of its importance. The board appoints the CEO, decides on the CEO’s reward, larger investments and strategy, and monitors the company. The purpose of this paper is to investigate the relationship between board monitoring through qualitative measures of a firm’s Board of Directors and its financial performance. The effect of the firm’s board roles on firm performance has long been of great interest to financiers, economists, behavioral scientists, legal practitioners and business operators. A survey of the literature on corporate governance and board monitoring and other board roles and the relationship between board monitoring and financial performance leads to the development of a regression model based on a framework which takes into account both variables affecting board monitoring and firm performance. The design of the model is aimed at identifying whether board monitoring affects has any effect on performance as measured by return on assets. The findings of the study indicated a positive relationship between several board monitoring variables like ownership concentration, board size, directors shareholding and board skill and the firm’s performance. The paper provides useful information that is of great value to policy makers, academics and other stakeholders. The findings of this study contribute to the Agency Theory debate, in essence that the board monitoring will improve the performance and avoid possible conflict of interests.