The effect of corporate governance on financial performance of local authorities in Kenya
The aim of this research was to determine the relationship between financial performance of local authorities and their corporate governance characteristics. The corporate governance practices studied included the frequency of meetings by the council, political composition of the full council, the role of internal audit, the role of the audit committees, the effect of managerial practices, and the size of the full council. The study applied a causal-comparative research design. The sample comprised of 30 local authorities adjacent to the greater Nairobi region. The data set comprised of both secondary and primary data. Secondary data was obtained from the offices of town clerks as well as the audited financial statements of the respective local authorities. The study sampled observations for the five-year period between 2002 and 2007. A structured data sheet was used to collect secondary data. A multiple regression model of financial performance versus corporate governance characteristics was applied to examine the relationship between the variables. The study established that financial performance by the local authorities in Kenya is influenced by their political composition, the manner in which internal audits are conducted, and managerial approaches applied by the chief officers. This is further linked to failure by the councils to conduct regular assessment of their performance; poor coordination between the internal and external providers of assurance; and high staff turnover and transfers from within the top management of the councils. The findings have been found to concur to previous evidence from empirical studies on corporate governance.