Corporate governance and financial performance of Companies quoted in the Nairobi stock exchange

Abstract

An effective system of corporate governance helps to facilitate decision making, accountability and responsibility within and outside a corporate entity. Good corporate governance ensures that the varying interests of stakeholders are balanced, decisions are made in a rational, informed and transparent fashion and that decisions contribute to the overall efficiency and effectiveness of the organization. This study sought to establish whether listed firms which adopted corporate governance provisions which exceeded the minimum provisions significantly outperformed those which stuck to the minimum. Data was obtained from 43 companies and analysed on a multiple linear regression model using SPSS version 17.0.The analysis included descriptive statistics, correlation coefficients, beta coefficients of the variables and the coefficient of determination. The data analyzed showed that there was a positive relationship between corporate governance attributes which exceeded the minimum level prescribed by law and common practice, and firm performance. The relationship was found to be significant at the 95% level. It can therefore be concluded that it would be beneficial for a firm to institute corporate governance practices that exceed the minimum levels.