dc.description.abstract | The complexity of the present-day corporate operations and the global economy’s rapid change
has brought into fore the difficulties managers have in understanding their own risk exposures
in the course of their daily operations. The main objective of the study was to determine the
relationship between board characteristics and financial risk management of firms listed at the
Nairobi Securities Exchange. Based on the research topic and related variables, Agency
Theory, Stewardship Theory and the resource dependency theory formed the theoretical review
literature that connect the theory and practice in regard to board characteristics and
organizational risk management. The study adopted a correlation research design. A correlation
research design aims at explaining phenomena by using quantitative data analysed using
mathematical based methods. The 49 operational firms that are members of the NSE made up
the Study's population. In addition, the main source of data for this study was secondary
sources. The study conducted both descriptive and inferential statics. The descriptive statistics
showed that directors with financial expertise in majority of the firms ranges between 1 to 7 of
the board of the firms listed at the NSE. Based on initial multicollinearity tests Number of
directors appointed after CEO appointment was excluded implying that the variable was
closely represented by another one among the rest hence the variable was dropped from further
analysis. The study established that increasing the number of directors on the board by a single
unit decreases Financial Risk Index (FRM) by 0.23 (β = - 0.238) implying the firm’s ultimate
financial risk management is in turn only improved by a factor of 0.23 but this impact may be
due chance as the variable is also not significant at (α=0.586). According to the study,
independence of the of the board has a positive relationship with organizational financial risk
management 1.47 (β = - 1.475) but not significant (α=0.065). Similarly, the study established
that financial expertise has a positive (β=0.78) but not significant (α=0.384) relationship with
financial risk management. The study established that gender diversity positively (β = - 1.558)
affect financial risk management and was significant (α=0.04). The view that having more women
on the board leads to better financial risk management did hold in this study. Considering control
variables, only age of the firm has a significant impact on financial risk management (α=0.012)
and (β = 0.064) implies the study found out that the older the firm the lower the financial risk
hence implied a better financial risk management approach is in place. Impact of number of
regulators was found to be not significant (α= 0.075) on financial risk management however
the presence of more than 1 core regulators for a firm in a segment led to better financial risk
management practices that more than proportionately reduced financial risk in the firm (β = -
4.244). Finally, in regard to Size of the firm, the study found out that if the size of the firm is
increased by Kes 1,000 this negligibly decreases Financial Risk Index (FRM) by
0.0000000009178 (β = 0.0000000009178) hence in turn ultimate financial risk management is
improved by a marginal factor of 0.0000000009178 but this impact may be attributed to chance
as it is not significant at (α=0.863). The study recommends that the firms should harmonize the
number of directors on the board to an average of 10 to ensure enhancement of other board
characteristics contribution towards financial risk management. The study also recommends
that the firms under study should consider financial expertise of a director during recruitment.
Furthermore, the study recommends that the firms should incorporate more independent
directors. Lastly, the study results imply that in the context of an average board size of 10
directors for firms listed on the NSE, use of a higher number of regulators in providing external
oversight to financial industry segment may be an effective approach in forcing the boards to
agree and adopt a risk governance rule set towards reduction of financial risk management in
the firm. | en_US |