EMPIRICAL ANALYSIS ON FINANCIAL PERFORMANCE OF LISTED FIRMS IN COMMERCIAL AND SERVICE SECTOR IN KENYA: CORPORATE BOARDS, DO THEY MATTER?
Journal Title: Africa International Journal of Management Education and Governance - Year 2017, Vol 2, Issue 2
Abstract
Corporate boards are tasked with overall financial performance of firms under commercial and service sector which have for decades been at the centre of driving the economies of the developing nations as evidenced through the tremendous growth in the private sector credit over time. Unfortunately, commercial and service sector in Kenya has been witnessing a slow growth for the last five years topping the list of firms selling off their assets to cater for operational expenses. To realize better and improved financial performance however, it is vital to understand the nature and composition of these boards that have shown great interest in shifting towards asset-light business models to remain afloat. These actions have left shareholders with some of the worst wealth destruction experience ever seen at Nairobi Securities Exchange (NSE). Therefore, this study aimed at establishing the empirical relationship between board characteristics and financial performance of commercial and service sector in Kenya. The study used the base data collected from the NSE reports which has all the annual reports of the listed firms under commercial and service sector as at December 2015. The study employed a panel data estimation technique with application of Hausman specification test which preferred Fixed Effects Regression Model as opposed to Random Effects GLS model in estimation. Significance was tested at 5% level. From the study results, both board size and board diligence were shown to significantly increase firm financial performance while gender diversity led to a significant decline in firm financial performance. Based on the results, the study recommends for considerable proportion of directors in board since these managers have a better appreciation of the business and can therefore make better decisions. Also, there is need for more board meetings undertaken by directors to solve emerging organizational problem as they were associated with increased financial performance and finally, firms need to set up a department which will facilitate affirmative action through research to have appropriate incorporation of both gender as it was associated with improved financial performance.
Authors and Affiliations
Joseph Abuga Orayo, Kennedy B Mwengei Ombaba
Keywords
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