Effect Of Selected Corporate Governance Characteristics On Financial Performance Of Listed Firms In Kenya

Abstract

Corporate governance structures are very critical for efficient firm performance in various sectors. The study sought to establish the effect of CG on the financial performance of listed firms in Kenya. The study will be underpin by agency theory, stakeholder theory and stewardship theory. Descriptive design was adopted by this study. Study population were all listed firms consisting of 64 firms that had floated shares at the NSE as at 31 December 2019. The study was a census of all the 64 companies. This study used secondary data retrieved from the annual reports of all the listed companies at the NSE. Data extracted was recorded on data collection sheets for each company. Data was collected for a period of five years from 2015 to 2019. Diagnostic tests were performed on the variables before regression to ensure the model for analysis is robust for the purpose of estimation and forecasting. The study specifically tested assumptions including heteroscedasticity, normality, autocorrelation, multicollinearity and unit root tests. The collected data was sorted and classified ready for use. Data will be entered into excel and exported to STATA and analyzed using descriptive and inferential statistics analysis. The researcher used multiple regression model for purpose of analysis to examine relationship between study variables. The objectives were examined at 5% significance level while employing student t test. Analysis of data were conducted at 0.05 level of significance. The p value calculated on each variable were compared with the level of significance. First, regression analysis revealed that the effect of director’s remuneration on financial performance of listed firms was positive and significant. Secondly, the effect of board diversity on financial performance was positive and significant. Thirdly, the effect of board meeting frequency on financial performance was inverse and significant. Fourthly, effect of leverage on financial performance was positive but not statistically significant. Finally, the effect of firm size on financial performance was positive and significant. Study makes a number of conclusions. First, that directors who are better remunerated can focus on the in work of strategic decision making and ensuring the firms is run professionally. Secondly, female directors tends to be transparent and are better stewards of resources compared to male counter parts hence improved financial performance. Thirdly, the inverse relationship between board meeting frequency and financial performance may be explained by the fact that too many meeting may be destructive of the matter at hand. Fourthly, increased leverage means that the firm saves on the amount that would have been paid as corporate tax to the government. The savings realized means the profits of the firm is enhanced. Finally, larger firms have adequate resource base to be invested to lead to enhanced financial performance compared to smaller firms. The study finally makes the following recommendations; Management of listed firms to better remunerate the board of directors. Better remunerated board of directors would focus on their work of strategic decision making and ensuring the firms is run professionally. The study recommend to the management of the listed firms to enhance board diversity by recruiting more female directors into the board. Additionally, top management of the listed to have the right number of meeting. The firms should adopt optimal leverage where the risk of solvency is minimal and the firm still enjoys corporate tax savings given the leverage. Finally, management of listed firms to enhance their assets base through assets investment in current and non-current assets. Increased asset base through reinvestment is critical since larger firms are able to enjoy advantages accruing from economies of scale.