Corporate Governance and Performance of Firms Listed on the Nairobi Securities Exchange
Vol. 6 No. 01 (2018)
Economics and Management
January 5, 2018
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The purpose of this study was to establish the effect of corporate governance on performance of firms listed on the Nairobi Securities Exchange (NSE). The author developed a corporate governance index as a proxy for corporate governance based on the seven attributes of the recently revised Capital Markets Authority (CMA) draft code of corporate governance practices for public listed companies in Kenya. The guidelines cover board operations and control, rights of shareholders, stakeholder relations, ethics and social responsibilities, accountability, risk management and internal audit, transparency and disclosure and supervision and enforcement. The survey questionnaire was the main tool of data collection and was distributed to 56 CEOs and corporation secretaries. The response rate was 87.5%. Annual reports for 2015 were used to compute the CGI score for the different organizations. The study found a statistically significant relationship between corporate governance and non-financial performance of firms listed on the Nairobi Securities Exchange confirming that organizations can enhance their performance by implementing good corporate governance, specifically those attributes of good corporate governance that matter.
Corporate Governance and Performance of Firms Listed on the Nairobi Securities Exchange. (2018). International Journal of Scientific Research and Management (IJSRM), 6(01), EM-2018. https://doi.org/10.18535/ijsrm/v6i1.em02
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1. Barako, D. G., & Brown, A. M. (2008). Corporate social reporting and board representation: evidence from the Kenyan banking sector, Journal of Management and Governance, 12,(4), 309-324
2. Berle, A.A & Means G.C ( 1932). The Modern Corporation and Private Property. 2nd Edition, Harcout, Brace and World, New York 1967.
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5. Cheung, Y.L., Connelly, J.T., Jiang, P., & Limpaphayom, P (2011). Does corporate governance predict future performance? Evidence from Hong Kong. Financial Management, Vol. 40, (1), 159–197.
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10. Doyle, P. (1994). Setting business objectives and measuring performance. European Management Journal, Vol. 12 (2), 123-132.
11. Filatotchev, I., & Boyd, B. K. (2009). Taking stock of corporate governance research While looking to the future. An International Review, 17, (3), 257-265.
12. Freeman, R.E. (1984). Strategic Management: A Stakeholder Approach. Pitman Publishing Inc., Massachusetts.
13. Gompers, P.A., Ishii, J.L., & Metrick, A. (2003). Corporate governance and equity prices. Quarterly Journal of Economics 118, (1), 107-155.
14. Gyakari, N. (2009). Internal corporate governance structures and firm financial performance: Evidence from South Africa listed firms (Unpublished PhD Thesis). University of Glasgow.
15. Haniffa, R., & Hudaib, M. (2006). Corporate governance structure and performance of Malaysian listed companies. Journal of Business Finance & Accounting, 33, (7-8), 1034-1062.
16. Hoskisson, R.E., Johnson, R.A., & Mossel, D.D. (1994). Corporate divestiture intensity in restructuring firms: Effects of governance, strategy and performance, Academy of Management Journal, 37, 1207-1251.
17. Irungu, G.(2016, December 11).KQ, Uchumi’s Decline to zero net worth puts CMA on the Spot. The Business Daily. Retrieved February 28, 2017 from http://www.businessdailyafrica.com.
18. Jensen, M.C., & Meckling, W.H. (1976). Managerial behavior, Agency costs and ownership structure. Journal of Financial Economics, 3, (4), 305-360.
19. Kalezić, Z (2012). Corporate governance and firm performance with special reference to the banking system: empirical evidence from Monetengro. Journal of Central Banking Theory and Practice, vol. 2, pp. 19–54.
20. Kerlinger, F.N. (2002). Foundations of Behavioural Research: Holt, Rhinehart and Winston, Inc. USA
21. Kaplan, R., & Norton, D. (2005). The balanced score card. Measures that drive performance. Harvard Business Review, 83, (7), 172-180.
22. Kocmanova, A., & Simberova, I. (2012). Modelling of corporate governance indicators. Engineering Economics, Vol. 23 (5) 485-495.
23. Munisi, G.H., Hermes, N., & Randoy, T. (2009). Corporate boards and ownership structure: Evidence from Sub- Saharan Africa. International Business Review, 23, (4), 785-796.
NSE (2016). History of NSE. Retrieved June 9, 20 http://www.nse.co.ke/nse/history-of-nse- html.
24. Nunnally, J.(1967). Psychometric theory. New York. McGraw Hill.
25. Nyasha, S., & Odhiambo, N.M. (2014). The dynamics of stock market development in Kenya. The Journal of Applied Business Research, 30 (1), 73-82.
26. Obeten, O. I., & Ocheni, S. (2014). Empirical study of the impact of corporate governance on the performance of finance institutions in Nigeria. Journal of Good Corporate and Sustainable Development in Africa, 2, (2), 57-73.
27. Okiro, K. (2014). Corporate governance, capital structure, regulatory compliance and performance of firms listed at the East African Community Securities Exchange. Unpublished PhD Thesis, School of Business, University of Nairobi.
28. Okoth, E. (2015, August 2). Turbulent Times for Kenya Airways as it Records 26 Billion Shillings Loss. The Daily Nation. Retrieved January 30 2017 from http://www.Nation.co.ke/news .
29. Otman, K (2014). Corporate governance and firm performance in listed companies in the United Arab Emirates. Unpublished PhD Thesis. College of business, Victoria University, Melbourne Australia.
30. OECD (2004). The OECD Principles of Corporate Governance. Retrieved April 30, 2016 from http://www.oecd.org/dataoecd/32/18/31557724.pdf.
31. Sandala, M., Manzanga, N., & Shamhuyenhanzva, R. (2015). How do board characteristics influence business performance. Evidence from non-life insurance firms in Zimbabwe. Economica, Vol. 1 (4).Shabbir, A., & Padget, C. (2005). The UK code of corporate governance: Link
32. Between compliance and performance. Working paper, ICMA Centre, University of Reading. Schendel, D., Rumelt, R.P., & Teece, D.J. (1991). Fundamental research issues in strategy and economics. Strategic Management Journal, 12, Special issue, 5-29.
33. Solomon, J., & Solomon, A. (2004). Corporate governance and accountability, Chichester: Wiley.
34. Tosuni, G. (2013). Impact of Corporate Governance on the Performance of Financial institutions in Kosovo and Montenegro. Unpublished PhD Thesis. Staffordshire University.
35. Wilks, J. (2004). Corporate governance and measuring performance. Measuring Business excellence Vol. 8 (4), 13-16.
2. Berle, A.A & Means G.C ( 1932). The Modern Corporation and Private Property. 2nd Edition, Harcout, Brace and World, New York 1967.
3. Brown, R., & Gorgens, T.( 2009). Corporate governance and financial performance in an Australian Context. Treasury Working Paper.
4. Cadbury Committee, (1999). Report of the Committee on the Financial aspects of Corporate Governance, Gee, London, UK.
5. Cheung, Y.L., Connelly, J.T., Jiang, P., & Limpaphayom, P (2011). Does corporate governance predict future performance? Evidence from Hong Kong. Financial Management, Vol. 40, (1), 159–197.
6. Claessens, S. (2006). Corporate governance and development. The World Bank Research Observer, 21, (1), 91-122.
7. Cytonn Investment (2016). What is the role of corporate governance in the recent investor Losses? Cytonn Corporate Governance Report, May 2016.
8. Daft, R.L. (2000). Management 5th Edition. The Dryden Press. Philadelphia.
9. Davis, J.H., Schoorman, F.D., Donaldson, L. (1997). Academy of Management Review: 22, 20-47.
10. Doyle, P. (1994). Setting business objectives and measuring performance. European Management Journal, Vol. 12 (2), 123-132.
11. Filatotchev, I., & Boyd, B. K. (2009). Taking stock of corporate governance research While looking to the future. An International Review, 17, (3), 257-265.
12. Freeman, R.E. (1984). Strategic Management: A Stakeholder Approach. Pitman Publishing Inc., Massachusetts.
13. Gompers, P.A., Ishii, J.L., & Metrick, A. (2003). Corporate governance and equity prices. Quarterly Journal of Economics 118, (1), 107-155.
14. Gyakari, N. (2009). Internal corporate governance structures and firm financial performance: Evidence from South Africa listed firms (Unpublished PhD Thesis). University of Glasgow.
15. Haniffa, R., & Hudaib, M. (2006). Corporate governance structure and performance of Malaysian listed companies. Journal of Business Finance & Accounting, 33, (7-8), 1034-1062.
16. Hoskisson, R.E., Johnson, R.A., & Mossel, D.D. (1994). Corporate divestiture intensity in restructuring firms: Effects of governance, strategy and performance, Academy of Management Journal, 37, 1207-1251.
17. Irungu, G.(2016, December 11).KQ, Uchumi’s Decline to zero net worth puts CMA on the Spot. The Business Daily. Retrieved February 28, 2017 from http://www.businessdailyafrica.com.
18. Jensen, M.C., & Meckling, W.H. (1976). Managerial behavior, Agency costs and ownership structure. Journal of Financial Economics, 3, (4), 305-360.
19. Kalezić, Z (2012). Corporate governance and firm performance with special reference to the banking system: empirical evidence from Monetengro. Journal of Central Banking Theory and Practice, vol. 2, pp. 19–54.
20. Kerlinger, F.N. (2002). Foundations of Behavioural Research: Holt, Rhinehart and Winston, Inc. USA
21. Kaplan, R., & Norton, D. (2005). The balanced score card. Measures that drive performance. Harvard Business Review, 83, (7), 172-180.
22. Kocmanova, A., & Simberova, I. (2012). Modelling of corporate governance indicators. Engineering Economics, Vol. 23 (5) 485-495.
23. Munisi, G.H., Hermes, N., & Randoy, T. (2009). Corporate boards and ownership structure: Evidence from Sub- Saharan Africa. International Business Review, 23, (4), 785-796.
NSE (2016). History of NSE. Retrieved June 9, 20 http://www.nse.co.ke/nse/history-of-nse- html.
24. Nunnally, J.(1967). Psychometric theory. New York. McGraw Hill.
25. Nyasha, S., & Odhiambo, N.M. (2014). The dynamics of stock market development in Kenya. The Journal of Applied Business Research, 30 (1), 73-82.
26. Obeten, O. I., & Ocheni, S. (2014). Empirical study of the impact of corporate governance on the performance of finance institutions in Nigeria. Journal of Good Corporate and Sustainable Development in Africa, 2, (2), 57-73.
27. Okiro, K. (2014). Corporate governance, capital structure, regulatory compliance and performance of firms listed at the East African Community Securities Exchange. Unpublished PhD Thesis, School of Business, University of Nairobi.
28. Okoth, E. (2015, August 2). Turbulent Times for Kenya Airways as it Records 26 Billion Shillings Loss. The Daily Nation. Retrieved January 30 2017 from http://www.Nation.co.ke/news .
29. Otman, K (2014). Corporate governance and firm performance in listed companies in the United Arab Emirates. Unpublished PhD Thesis. College of business, Victoria University, Melbourne Australia.
30. OECD (2004). The OECD Principles of Corporate Governance. Retrieved April 30, 2016 from http://www.oecd.org/dataoecd/32/18/31557724.pdf.
31. Sandala, M., Manzanga, N., & Shamhuyenhanzva, R. (2015). How do board characteristics influence business performance. Evidence from non-life insurance firms in Zimbabwe. Economica, Vol. 1 (4).Shabbir, A., & Padget, C. (2005). The UK code of corporate governance: Link
32. Between compliance and performance. Working paper, ICMA Centre, University of Reading. Schendel, D., Rumelt, R.P., & Teece, D.J. (1991). Fundamental research issues in strategy and economics. Strategic Management Journal, 12, Special issue, 5-29.
33. Solomon, J., & Solomon, A. (2004). Corporate governance and accountability, Chichester: Wiley.
34. Tosuni, G. (2013). Impact of Corporate Governance on the Performance of Financial institutions in Kosovo and Montenegro. Unpublished PhD Thesis. Staffordshire University.
35. Wilks, J. (2004). Corporate governance and measuring performance. Measuring Business excellence Vol. 8 (4), 13-16.
