Effects of corporate governance on the financial performance of companies listed in the Nairobi Securities Exchange
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Date
2013-01-03
Authors
Choge, Abraham Kipleting
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Abstract
In recent times, interest in corporate governance in the African continent has assumed highest
propositions. This is probably due to the great push from the developing countries to the
African countries to embrace good governance in order to attract foreign investors and to
improve shareholders value. The General objective of the study was to investigate the effect
of corporate governance on the financial performance of companies listed inthe Nairobi stock
Exchange whereas the specific objectives were to find out the effects of board size on the
financial performance of firms listed in NSE, to establish the effect of board composition on
financial performance of firms listed in NSE, to ascertain the effects of ownership
concentration on the financial performance of firms listed in NSE and to establish the effect of
sustainable responsible business on the financial performance of companies listed in the
NSE. This study utilized four main theories i.e. shareholder's model, stakeholder models,
agency theory, management theory, stakeholders theory and stewardship theory. The study
used longitudinal research design with the target population being companies listed in the
Nairobi stock exchange since the year 2004 after the automation of the systems in the stock
market. Secondary Data was collected from the capital markets authority library. Data
collected was analyzed using SPSS regression analysis. Findings from the study revealed that
the coefficient's p-values (p=0.00I<0.005, p=0.002<0.005 and p=0.004<0.005 for ROA, ROI
and ROE respectively) show that the results are statistically significant at 5% significance
level. These regression results imply that a unit increase in board size would result in an
increase of ROA by 0.231, ROT by 0.219 and ROE by 0.205. From the study, it can be
concluded that the board size, ownership concentration, board composition and sustainable
responsible business all have a significant effect on the financial performance of companies
listed at the NSE. It is evident that corporate governance structure has an influence on
financial performance in companies listed in the NSE Kenya. Hence, the study recommends
that there is a need to strike a good balance between quality and quantity with regards to
board sizes hence board size should be fairly large and not too large that will discourage
investors especially shareholders. Further research should be carried More research on
individual board structures are needed to assess the effects on its performance. Also future
study should look other factors such as shareholders interest, board and CEO compensation to
establish its effects on financial performance.
Description
Department of Accounting and Finance, 65p. The HG 5843 .A2 2012