Effect of Corporate Governance on Financial Reporting Quality in Non-governmental Organizations: a Case Study of Nairobi County, Kenya
Abstract
Corporate governance has shown to improve financial reporting quality. Following a series of
NGOs collapsing due to financial reporting quality issues, corporate governance has recently
received a lot of attention in Kenya. The purpose of this study was to evaluate the relationship
between governance and financial reporting quality in NGOs in Nairobi County using a descriptive
design. The population of the study was 285 registered NGOs in Nairobi County between 2016
and 2020. The sample size consisted of 74 NGOs selected using The Slovin's Formula. Systematic
sampling was utilized to choose the appropriate sample size where every 4th NGO was selected
limiting sampling bias. The research was based on secondary sources of data from annual reports
by NGOs. The published reports were sourced from the NGO board website. Average firm data
was used for analysis. Various tests were done to check on the assumptions of the regression
model. They included normality, heteroskedasticity, and multicollinearity. The descriptive
statistics, correlation and regression analysis were used for analysis generated through SPSS. From
the model summary, corporate governance had a strong relationship with FRQ. Corporate
governance variables used in this research were found to contribute 64.9% change in FRQ. This
shows that corporate governance variables controlled by firm size are major factors in financial
reporting quality of NGOs. From the ANOVA, the model fitted the data ass the significance value
was less than 0.05. From the descriptive, financial reporting showed a mean of above 60%. This
indicates that 60% of the NGOs had their reports signed by auditors on time with the quality
differing so much across the NGOs. Board composition averaged at 64% and differed so much
across the NGOs. From the regression analysis, board composition showed a positive and
significant effect on FRQ. Correlation analysis indicated that a positive and significant relationship
exited between board composition and FRQ. From the descriptive statistics, gender diversity
showed a mean of 33.9%. From the regression, board diversity showed a positive but insignificant
effect on FRQ of NGOs. From the correlation analysis showed a positive relationship between
board diversity and FRQ. From the descriptive statistics, board independence showed a mean of
38.45%. Board independence showed a positive effect on FRQ. Correlation analysis showed a
positive and significant coefficient. Firm size showed an average log of assets of 14.29. Firm size
showed an insignificant positive relationship with FRQ. Findings showed that the ratio of
independent to total board members was below 50%. Board independence showed a positive effect
on FRQ. Correlation analysis showed a positive and significant coefficient. Firm size showed an
insignificant relationship with FRQ. The study concludes that corporate governance variables
have a relationship with FRQ of NGOs in Nairobi County. The study recommends that NGOs
increase the number of non-executives, female and independent directors in order to enhance FRQ.
A similar study in a rural county and adopting primary data is recommended.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1411]
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