The relationship between board size and board composition on firm performance: a study of quoted companies at the Nairobi stock exchange
Abstract
There is no gainsaying of the fact that corporate governance structure of a firm has
critical impact on the responsive ability of a firm to external factors that impinge on
performance. Well governed firms have been noted to have higher firm performance.
Though corporate governance is multi-dimensional, this study examined the
relationship between board size and board composition on performance measured by
Tobin Q and ROA of non-financial listed firms on the Nairobi Stock Exchange.
Annual data covering 2000-2002 was used.
The findings suggest that the size of the board of directors is an independent
corporate governance mechanism. This implies that any relationship between board
size and firm valuation is indeed casual. However in contrast to previous studies,
there was no significant relationship between board size and firm valuation. On
average, firms choose their number of board members just optimally. The mean board
size was found to be 7.18 and the maximum was fifteen with a deviation of2.85.
It was also evident from the sample that most firms in Kenya adopt the two-tier board
structure where the positions of board chairman and CEO are occupied by different
personalities thereby reducing the agency cost. The firms are of similar sizes
indicated by their asset base, fixed assets forms a major component of their total
assets and that most of the firms depend on debt financing as compared to equity
financing.
Citation
Masters of business administrationSponsorhip
University of NairobiPublisher
School of business,University of Nairobi