The relationship between corporate governance practices and financial performance of local airlines in Kenya
This research paper presents the relationship between corporate governance practices and financial performance of local airlines in Kenya. The paper begins with a brief introduction and theories corporate governance which includes the Agency theory, Transactions cost economics and the Life cycle theory of firm. The paper highlights the importance of good corporate governance practices, the measures of financial performance, the past and present state of airlines industry in Kenya. The paper explains how corporate governance practices is measured by use of the corporate governance index (GCI), which is a score of various corporate governance questions derived from the various corporate governance codes of the Capital markets authority. The codes are grouped into four sub indices namely: Shareholders rights, Directors composition and structure, Ownership structure, Disclosure and audit and compensation policy. Return on assets (ROA) is also explained in the paper and how it is used as a measure of financial performance. A total of 30 local airlines were considered for study which is the total population of operational local airlines in Kenya. No sampling was done as the entire population was considered small hence all the element in the entire population was considered for study. The study employed drop and pick questionnaires. The type of the data was quantitative in nature, which was analyzed using SPSS computer package. The study found that there is a significant relationship between corporate governance practices and financial performance of airlines. And airlines with strong corporate governance practices also have better financial performance, with a degree of variation on Return on assets at 81.4%.