Effect Of Corporate Governance On Firm Performance For Audit Firms In Nairobi City County

Abstract

The research was conducted in order to investigate the relationship between corporate governance and firm performance of audit firm industries in Nairobi City County. The study aimed at establishing how the board size, frequency of holding meetings, board composition and board independence affect the audit firm’s financial performance in Nairobi City County. The study has utilized a cross-sectional survey research design of audit firms operating within Nairobi City County since this research design is used to establish the relationship between two or more variables. In this study, there was one dependent variable namely firm performance and four independent variables board size, frequency of holding meetings, board composition, and board independence. The population of interest was all the 394 audit firms operating within Nairobi County, but the study covered 15% of the target population of 59 firms, and this was selected as our sample using random sampling technique and data was analyzed using the SPSS statistical package. From the study, we note that the independent variables all are positively correlated with financial performance. The independent variables contributed up to 32% of audit firms’ performance, implying that other factors other than the ones analyzed contributed the remaining 68% of the financial performance of the audit firms. The current study found out that board size had a correlation coefficient of 0.455, frequency of board meetings was found to be 0.483, composition of the board members was found to be 0.519 and board independence was found to be 0.563, indicating a positive influence on the performance of audit firms. Board size, frequency of board meetings, board composition and independence of board members all were established to be the main determinant of the audit firm’s performance. The larger the board size members the better the performance since large board members will bring in expertise and variety of strategies to improve the performance of the firms. Therefore, the study recommends that audit firms should have a sizeable number of board members so as to help improve on its performance. The study further recommends that, firms should have a regular board meeting to enable internalizing the strategies aimed at improving the operations of the company hence improved performance. The study was mainly limited by the cost to collect data due to movements from one firm to another and the fact that the study was based on a sample size thus as certain section preferred for the study. Further study should be carried out to include one on one interviews so as to compare the results from the interviews data with the current ones of the closed ended questionnaires. Both secondary data and primary data should be explored in the subject under study to make sure that the topic of corporate governance is well covered. The study recommends further studies to be done on the other sectors other than audit firms on the corporate governance and firm performance. Sectors such as banking, telecommunications, manufacturing, retail, transport, agricultural among other should be explored.