Relationship between board independence and operational performance of the construction and allied firms listed at the Nairobi Securities Exchange, Kenya

Abstract

The study sought to establish relationship between board independence and operational performance of the construction and allied firms listed at the Nairobi Securities Exchange, Kenya. The independent variable was board independence while operational performance was the dependent variable with firm size and leverage as the control; variables. The study adopted the descriptive survey design. The study target 5 construction and allied firms listed at the NSE, Kenya and census was used. Data was collected from auxiliary sources covering a ten year period (2010-2019). Once the data had been collected from the field, it underwent cleaning through editing to remove inconsistencies. Thereafter, it was exported to excel where a summary of means and standard deviations were generated. For the sake of drawing relevant inferences, the study adopted regression analysis. Normality test was conducted using PP Plots, multicollinearity using variance of inflation factors, autocorrelation using Durbin Watson Statistics and heteroscedasticity test using scatter plot. The study established that whereas the relationship between board independence and operational performance was significant, firm size and leverage did not significantly moderate this relationship. The study concluded that board independence has significant effect on operational performance. The study recommends that senior managers of the construction and allied firms listed at the NSE in Kenya should ensure there is equal representation of the independent board members across all the existing board committees. The policy makers covering the Capital Market Authority (CMA) should establish clear policies and regulation to guide board independence of the construction and allied firms listed at the NSE in Kenya. The study was limited by a small sample of 5 construction and allied firms listed at the NSE in Kenya. Further studies are recommended covering a relatively larger sample for instance the entire listed firms in Kenya.