An analysis of the effect of corporate governance on performance of commercial state corporations in Kenya

Abstract

This study sought to examine how Corporate Governance affects financial performance in commercial state corporations in Kenya. Empirical studies have provided the nexus between corporate governance and firm performance. Well-governed firms have higher firm performance. Mismanagement, bureaucracy, wastage, pilferage incompetence and irresponsibility by directors and employees are the main problems that have made State corporations (SCs) fail to achieve their performance objectives. The poor performance of SCs in Kenya by 1990 led to outflow from central government to parastatals equivalent to 1 percent of the GDP in 1991. The data set for this study covered a four-year period between 2003 -2006. The objectives of the study are to identify the relationship between financial performance and board composition and size and CEO duality identify the relationship between financial performance and good governance practices as recommended by capital market authority. There are practical implications for academic researchers, the Government and practitioners. The study used descriptive survey design. The target population for this study was 41 commercial SCs in Kenya as presented by Inspectorate of SCs. see Appendix: III. Sample of 30 respondents out of 41 was found ideal in comparison to 5% of 41 which is 2, SCs since it is a larger sample (Gupta, 2005)as displayed by Appendix IV. Respondents were 30 and human resource officers or company secretaries. The finance officers provided the financial reports. The primary data relate to the changes made as the sampled corporations implemented corporate governance practices. Data were analyzed through descriptive statistics and chi (x) square. The conclusion of the study brings out the following findings. That the board size mean for the sample was found to be ten while a minimum of three outside directors is required on the board. State corporations should also emphasise on a two tier system of management where the CEO does not double as the chair and the CEO. The study thus discloses that there is a positive relationship between RoE and board size and board compositions of all SCs. The government should enforce the measures it has laid down to ensure SCs are following them so that the recommended governance structures are followed. The concerned ministries should also be very keen in the supervisory role through the relevant committees to ensure that all regulations are enforced as required