Corporate governance mechanisms, regulatory framework and financial performance of publicly cross-listed companies at East African Community Region Titus Mutambu Mweta
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Date
2024-10
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Kenyatta University
Abstract
The mixed trend in financial performance has been a significant obstacle for publicly traded corporations, garnering the interest of academicians and financial analysts. The decrease has made a significant contribution to substantial financial losses and abrupt corporate collapses. Action taken to respond to corporate governance issues in the East African Community region includes implementing privatization policies and enhancing the role of capital markets regulators in safeguarding shareholders' investments. The main obstacle encountered by corporate board members and shareholders is to determine appropriate governance frameworks and the effect of different governance arrangements on financial performance. This research investigated the effect of corporate governance mechanisms on the financial performance of companies cross-listed in the East African Community region. The specific objectives were to establish the effect of independent directors, executive director's remuneration, executive director's shareholding, independent auditors, corporate block ownership and product market dominance on the financial performance among the companies cross-listed in the East African Community region. The study analyzed the influence of the regulatory compliance index on the corporate governance mechanisms and financial performance correlation. This was informed by the ideas of agency, stewardship, stakeholders, institutional and resource dependence theory. This study is grounded in the positivistic research philosophy. The study utilized an Explanatory non-experimental research design. A total of 9 companies out of 11 cross-listed were picked to form the sample size through purposive sampling. This study employed secondary panel data extracted from the integrated reports, audited financial statements, shareholder profiles and investor relations reports from 2013 to 2022. Diagnostic tests were performed to validate adherence to the principles of the classical linear regression model; autocorrelation was detected (p-value =0.000)<0.05), correlation coefficient for all variables was less than 0.85 and 0.1<VIF<10 confirming absence of multicollinearity, panel unit root test confirmed that all variables are stationary (p-value =0.000)<0.05) and Breusch–Pagan/Cook–Weisberg and White test revealed that error variance was heteroscedastic (p-value =0.000)<0.05). Data was analyzed with descriptive and inferential statistics. The data was presented using tables. The Whisman and McClelland (2005) moderation procedure was employed to investigate the effect of the regulatory framework. The Feasible Generalised Least Squares panel multiple regression analysis yielded significant evidence of a direct effect of independent directors, executive directors' remuneration, executive director's shareholding on both ROA and Tobin Q. Independent auditors demonstrated inverse relationship with ROA, while their effect on Tobin Q was not statistically significant. A significant and coherent relationship existed between the corporate block holding and ROA however there was no statistically significant effect of corporate block holding observed on Tobin Q. The study also discovered a statistically significant effect of the dominance of a product in the market on ROA. Nevertheless, there exists a statistically negligible inverse effect of the dominance of a product in the market on Tobin Q. The findings of this study documented that the regulatory framework plays a crucial role in influencing the correlation between executive directors' compensation, executive director's shareholding, independent auditors, product market dominance, and ROA. Nevertheless, the regulatory compliance index does not have a statistically significant effect on independent directors, corporate block holding, and ROA correlations. This study proposes as follows for policy; the capital market authorities, central banks, and insurance regulatory authorities should work together to develop, improve and administer the regulations and guidelines on board independence to bolster the significance of board autonomy, boost transparency, enhance decision-making, and protect shareholders' assets, CMA and ICPA should set clear and specific standards addressing the maximum number of contract renewals for audit firms to guarantee the autonomy of auditors and protect the investments of shareholders; policy makers should provide executive directors and other employees with the chance to own shares in the company through subscription, allowing them the privilege of owning shares at a pre-established price. For practice, this study portends that shareholders should create clear guidelines and synchronize remunerations for executive directors with those in other corporations to provide incentives and reduce conflicts of interest
Description
A thesis submitted to the school of business, economics, and tourism in partial fulfilment for the award of degree in doctor of philosophy (Finance Option) of Kenyatta University, October 2024
Supervisors
Dr. Ambrose O. Jagongo
Dr. Festus Mithi Wanjohi