The Relationship Between Corporate Governance Practices and the Financial Performance of Top 100 Small and Medium Enterprises in Kenya
The Capital Markets Authority published “code of corporate Governance Practices “for public listed companies in Kenya which was Gazetted on 4th March,2016.The new code of governance is based on apply or explain principle which requires companies to follow set out corporate governance codes. The country having experienced corporate malpractices like the CMC ,Imperial Bank, Uchumi, Mumias, Kenya Airways, Transcentury which were very costly to public investors needed to take immediate action to prevent a corporate crises. The study investigates the relationship between corporate governance and the performance of Top 100 SMES in Kenya. It adopts descriptive research methodological framework through which the secondary data collected were analyzed using both Regression analysis and Karl Pearson’s correlation techniques to find the relationship between corporate governance and organizational performance on one hand and the degree of relationship between corporate governance and organizational performance. The findings shows that the Number of board of directors, percentage of inside ownership, number of board meetings are positively correlated to improved organizational performance while Number of board committees percentage of outside directors CEO duality was negatively correlated to organizational performance . Organizations are encouraged to adopt good corporate governance practices to improve their performance and also to protect the interest of the shareholders. Most importantly the regulatory authorities must ensure compliance with good governance and apply appropriate sanctions for non-compliance to help the growth and development of industries in the country. The main contribution of the study to knowledge lies in its effort in strengthening corporate governance beyond the rights and responsibilities of different stakeholders in the management of an organization into areas involving the relationship between finance providers and an organization, compliance with legal, ethical and environmental needs of the society, among others. This contribution has in no small measure enhanced our understanding about the interpretations which have shaped corporate governance in relation to organizational performance both in theory and practice.
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