Relationship between board composition and financial performance of companies listed at the Nairobi securities exchange
Abstract
The purpose of this study is to establish the relationship between board composition and
financial performance of quoted companies at the Nairobi Securities exchange. In
specific terms the study reviewed whether board size, independent directors and board
committees, age of the directors, Gender mix, level of education and founder directors
have any effect or influence on financial performance of companies. This study
employed co relational survey design. The population of this research consisted of all
the listed companies in the Nairobi Security Exchange. The study used secondary data.
Financial performance (ROA) was collected for a period of three years (2010 to 2012).
Data was analyzed using Statistical Package for Social Sciences (SPSS) and results were
presented in frequency tables and figures.
The study results suggest that the size of the board plays an important role in influencing
the financial performance of quoted companies. Regression results indicated that there
was a positive relationship between board size and financial performance and that board
size has a positive impact on operational efficiency. The findings indicate that there was
a positive and significant relationship between number of independent directors and
financial performance of listed firms. Overall, the study found a strong and positive
relationship between board composition and firm financial performance of quoted firms
at the Nairobi Securities Exchange.
The data was then analyzed in terms of descriptive statistics like frequencies, means and
percentages. The study recommends that the management should ensure that corporate
governance practices are adhered to strictly as they are good determinants of financial
performance. It is also recommended that the firm should have non-executive directors
who act as “professional referees” to ensure that competition among insiders stimulates
actions consistent with shareholder value maximization. On the same note, the study
recommends that non-executive directors/ foreign ownership be handled with care for
their participation is significant. Non-executive directors/ foreign ownership should be
designed to enhance the ability of the firm to protect itself against threats from the
environment and align the firm's resources for greater advantage.
Citation
Master Of Science In Finance, University of Nairobi, 2013.Publisher
University of Nairobi Department Of Finance And Accounting