Board Structure and Profitability of Manufacturing and Allied Firms Listed at the Nairobi Securities Exchange, Kenya
Loading...
Date
2024-08
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Kenya’s manufacturing and allied sector is vital to the country’s growth economically. For Kenya’s vision 2030 to be realized, the sector is essential. However, manufacturing industry has experienced a downturn throughout time. Manufacturing gross domestic product of Kenya has experienced declining performances from 11.16% in 2011 to 7.24% in 2022. Therefore, the survey purposely ascertained how structure of the board affects financial performances of firms in manufacturing and allied industries listed on NSE. In particular, the study evaluated the influence of board size, gender composition and independence on financial performances of manufacturing companies registered on Nairobi Securities Exchange, Kenya. Resource based, agency, stewardship, institutional and dynamic capability theories served as theoretical reviews for the study. To achieve this, an explanatory method of design was used. Census sampling was utilized to sample all eight (8) manufacturing and allied firms listed on Nairobi Securities Exchange. Secondary data was utilized for the study. Diagnostic tests encompassing homoscedasticity, autocorrelation, multicollinearity, stationarity, and specification were applied on the panel data, obtained from firms' audited financial statements and financial reports from 2015-2022, was analyzed using panel multiple regression analysis, correlation analysis, and descriptive statistics (mean, standard deviation, and frequency). 0.05 significance level was applied as threshold for hypothesis testing. All ethical morals were followed carefully. Outcomes unveiled in the study showed a significant positive effect of board independence on financial performance; board size yielded an insignificant negative effect on financial performance; board gender diversity uncovered an insignificant positive effect on financial performance; while a insignificant moderating effect of firm size on the relationship between board structure and financial performance within Kenyan manufacturing and allied firms listed on the Nairobi Securities Exchange was revealed. The study recommends that the board independence should be strengthened to enhance the financial performance of the firms as this would allow for greater independence in decision of the board as it pertains to the financial performance of the studied firms in Kenya. The study contributes to the development of a more comprehensive theoretical framework that accounts for the unique institutional and cultural factors influencing corporate governance in Kenya. The study also provides a basis for developing evidence-based policies that encourage best practices in board structure and promote the profitability of manufacturing firms. Furthermore, the study helps boards of directors understand the importance of factors such as size, independence, and diversity in enhancing their effectiveness.
Description
A Project Submitted to School of Business, Economics and Tourism in Partial Fulfillment of the Requirement for the Award of Degree of Master of Business Administration (Finance Option) of Kenyatta University, August 2024.
Supervisor
Jeremiah Koori