Corporate Governance, Social Investment, Information Technology Investment and Financial Performance of Companies Listed at the Nairobi Securities Exchange

Abstract

Corporate governance has been an agenda for code of governance for many years. Emerging trend in business risks are environmental representing a significant shift from 2010 when nearly all top risks were either social or economic, rekindling a series of studies on possible causes of business failure with corporate governance at the center of it. The main objective of the study was to determine the effect of corporate social investment and information technology investment on the relationship between corporate governance and financial performance of companies listed at the Nairobi Securities Exchange (NSE). The study population was the 64 companies listed at the NSE. Quantitative secondary data for the years 2010 to 2019 was extracted from the companies’ websites. The data was subjected to panel data diagnostic tests to determine the appropriateness of the data prior to analysis using parametric tests. The diagnostic tests carried out were normality, multicollinearity, panel unit root, heteroscedasticity and serial correlation tests. The study used Pearson correlation and multiple linear regression analysis in conjunction with Baron and Kenny (1986) model for analysis. The study found a positive significant relationship between corporate governance and Firm Financial Performance (FFP). Moreover, the findings revealed that Corporate Social Investment (CSI) is a significant predictor of FFP but it does not moderate the relationship between corporate governance and firm financial performance. The findings also provide evidence that information technology investment is not a significant predictor of firm financial performance and that it has no intervening effect on the relationship between corporate governance and firm financial performance. The model as whole provides evidence to the conclusion that corporate governance, corporate social investment and investment in information technology have a significant positive effect on financial performance of firms quoted at the NSE. The findings provide collaborative evidence to prior studies by affirming that CSI on its own improves the companies’ profitability; knowledge that can be used by the company management to rescue companies from collapsing. As a contribution to theory, the findings reveal that stakeholder theory compliments agency theory by first building the brand of the company, which in itself is in the interest of shareholders that agency theory advocates. Secondly, agency theory’s theoretical assumptions overlook the diverse identities of stakeholders, that is the other groups’ interests and how these groups affect firm financial performance. As a contribution to policy and practice the findings will assist the management to reconsider areas to invest in as far as CSI is concerned by focusing more to those CSI attributes that matter as well as strategically investing in information technology. Regulators like NSE and Capital Market Authority may use the study findings in their supervisory role. The findings are limited to the attributes used in the study. Further research can be initiated by using different attributes for corporate social investment and information technology investment to test both intervening and moderating effect on the relationship between corporate governance and firm financial performance. This study used financial performance hence similar study could use company performance rather than limiting it to financial performance to widen scope for better collaboration.