Relationship Between Corporate Governance Practices and Performance of Medium Enterprises in Mombasa County, Kenya

Abstract

The success of medium enterprises is heavily influenced by a variety of factors, especially those championed by the CAMEL framework. The larger corporations are flourishing while the smaller ones are struggling. The general objective of this study was to establish the relationship between corporate governance practices and performance of medium enterprises in the county of Mombasa. The study was anchored on agency theory, Stewardship Theory, Stakeholder Theory and Resources Dependency theory. The study adopted a descriptive research approach. This research used 86 medium enterprises in Mombasa County. This study used primary data. Descriptive and inferential statistics were used to demonstrate the relationship between variables. Regression analysis was used to examine the relationship between corporate governance practices and performance of medium enterprises in the county of Mombasa The findings showed that there is a weak positive significant relationship between performance of medium enterprises in Mombasa County and board independence (rho=0.463). Also, there was a significant positive relationship between board size and performance of medium enterprises in Mombasa County (rho=0.618). Further, unit increase in Board Meetings, while holding other factors constant, will lead to an increase in Performance of medium enterprises in the county of Mombasa by 0.101 (p = 0.021). Number of board meetings also drew positive relationship in that the operating efficiency of medium enterprises improved over the years consequently leading to higher financial performance. These findings were in line with the objective of establishing the effect of corporate governance practices on the financial performance of medium enterprises. The study conclude that the regulators should improve on the mechanisms of ensuring that the corporate governance disclosures in the annual reports are not simply statement of good intentions but are actually implemented at firm level. This will greatly improve the level of corporate governance and by extension firm performance. That generally corporate governance has positive impact on all the performance indicators of an organization. The study recommends that the researcher, management, and policy development of training in the medium enterprises sector needs to be more open and flexible in order to address corporate governance issues. Research, management and policy instruments of training support will need to interact with, and be responsive to, the subtle distinctions of context that will moderate what is more appropriate, and more likely to be welcomed, in the small business sector.