The relationship between corporate governance and firm performance in the case of the Nairobi Stock Market
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Date
2012Author
Chirchir, Wilson K
Type
ThesisLanguage
en_USMetadata
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The study analyzed the performance of firms listed on the Nairobi Securities Exchange (NSE) and active for the years 2006 to 2010. A total of 232 observations were taken for firms whose data was available. Performance was measured using the accounting Return on Assets and the market-based Tobin's Q ratio. Data was analyzed using dynamic panel data with Ordinary Least Squares estimation applied to investigate the significance of the overall models for relationship between performance and the corporate governance. ANOVA results generated from the OLS estimation were used to test the overall significance of the model while correlation analysis was done for the relationship between performance and the individual corporate governance variables.
The study found that firms sampled had a high level of board independence (72.25%). Firms had a mean size of 6.62 for independent directors and 2.41 for non-independent directors. The mean size for directors was 8.29 with standard deviation of 3.41 representing a wide variation in size of boards. The study also found a wide variation in corporate performance as measured by both the ROA and the Tobin's Q.
The study found a positive, though low correlation between firm performance and board independence. The overall quality of the boards was also found to be low (30.71%). However, the study found a positive and statistically significant relationship between the quality of the board and board independence. This implies that the effectiveness of corporate governance appears to increase with an increase in board independence.
Overall, however, the study did not find any significant relationship between performance and corporate governance variables. It was suspected that the lack of the expected significant relationship may have been caused by the confounding impact of the unexpected turmoil that affected the macroeconomic and political environment in the country and which negatively affected Kenyan industry during the period under study. This arose from the significant impact of violence in the period 2007-2008 arising from political violence and which had wide (and negative) ramifications on corporate performance for subsequent years up to 2010.
Publisher
University of Nairobi, Kenya