The moderating effect of operating environment on corporate governance and firm performance: a case of corporate entities listed at Nairobi Securities Exchange

Abstract

Firm decisions are majorly affected by the operating environment in which they exist. Environmental context represents an exterior ecosystem. Effect of external environment context on strategic management is a discussion that is ever ongoing within which the organizational decisions and strategy are integrated. Operating environment either pose a threat or offer opportunities necessary to steer organization performance. The purpose of this study was to establish whether the operating environment had any moderating effect on the relationship between corporate governance and performance of firms listed at the Nairobi Securities Exchange (NSE). The study targeted all of the 66 the firms listed at the NSE within the period of the study. Both primary and secondary data sources were used. Reliability and validity of the study instruments was ascertained. Stepwise regression analysis was used to test forthe moderating effect of operating environment. From estimation, it was revealed that corporate governance had a positive and significant effect on performance of listed firms at NSE whereas operating environment significantly moderated the relationship between corporate governance and firm successes amongst companies listed at NSE. Based on the findings, the study recommends for strict adherence to guidelines by listed firms as proposed by capital markets authority. There is a necessity for firms to clearly identify and define the components and dimensions of the environment under which they operate. The study therefore recommends for organizational blending with their environment in order to remain relevant.