The Effects of Board Characteristics on Financial Performance of Listed Commercial and Service Firms at Nairobi Securities Exchange

Abstract

Corporate boards are tasked with overall financial performance of firms under commercial and service sector which have for decades been at the centre of driving the economies of the developing nations as evidenced through the tremendous growth in the private sector credit over time. Unfortunately, commercial and service sector in Kenya has been witnessing a slow growth for the last five years. To realize better and improved financial performance however, it is vital to understand the nature and composition of these boards. The main aim of this study was to establish the relationship between board characteristics and financial performance of commercial and service sector in Kenya. The study used the base data collected from the NSE records which has all the annual reports of the listed firms under commercial and service sector as at December 2015. The study employed a panel data estimation technique with application of Hausman specification test which preferred Fixed Effects Regression Model as opposed to Random Effects GLS model in estimation. Significance was tested at 5% level. Results are presented through graphs and tables as deemed appropriate. From the study results, both board size and board diligence were shown to significantly increase firm financial performance while gender diversity led to a significant decline in firm financial performance. Based on the results, the study recommends for considerable proportion of directors in board since these managers have a better appreciation of the business and can therefore make better decisions. Also, there is need for more board meetings undertaken by directors as they were associated with increased financial performance and finally, firms need to set up a department which will facilitate research to have appropriate incorporation of both gender towards improving financial performance of firms.