Relationship between board composition and firm performance.a quantitative study on Kenyan listed companies
Achira, Kerubo Elizabeth
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Due to various corporate scandals and failures, there has been a renewed interest on the role of boards in the performance of firms. In the light of Third world countries' financial crisis, the effectiveness of good governance in African economies has been a confronting issue .Agency problems arise when ownership is separated from management. In developing markets like East Africa, investors are eager to improve the governance mechanism. Researches on this topic worldwide have increased in recent years; however, many of these studies have obtained inconclusive findings because of various reasons such as fast changing of the market, management methods and different approaches. Board of directors as the monitors for management and trustee for shareholders play an important role. This situation has raised a key issue in corporate governance of how to effectively monitor managers and to exercise control so that managers act in the best interest of the shareholders .Governed firms have been noted to have good firm performance. There is no gainsaying of the fact that corporate governance structure has a critical impact on the responsive ability of a firm to external factors that impinge on firms' performance. This study reviewed previous literatures and studies from both advanced markets and Kenyan market. It examined the correlation between board composition and firm's performance of Kenyan listed companies. A quantitative approach was adopted to examine the correlation between managerial composition and firm performance of listed companies in NSE. The research population was 55 companies listed in NSE. Sample size of 60% was derived through stratified sampling method .Secondary data was used for this study and data sourced from annual audited financial statements of the listed companies in NSE. Empirical analysis was undertaken using Generalized Least Squares analyses. Softwares that were used included SPSS and STATA. Results of data analysis were interpreted in line with the research objectives and fmdings recommendations and conclusions reported. The findings of the study showed that board characteristics such as board size, board independence and gender diversity were positively related with firm performance, where as the number of board members with PhD level education was found to be negatively related to firm performance. The findings also provide partial evidence to different governance theories, further indicating the need for theoretical pluralism to gain insights into boards' functioning.
- OGR-School of Business