Relationship between Corporate Governance Quality and Financial Performance of Manufacturing Firms Listed at the Nairobi Securities Exchange

Authors

  • Florence Bosibori Nyaruri The Catholic University of East Africa
  • Henry Mburu The Catholic University of Eastern Africa
  • John Omurwa The Catholic University of Eastern Africa

Abstract

There has been renewed interest in the relationship between corporate governance and financial performance of modern corporations. This study, therefore, sought to investigate the relationship between corporate governance quality and financial performance of manufacturing firms listed at the Nairobi Securities Exchange. The study examined the relationship between board independence, board size, chief executive officer duality, frequency of board meetings, and a comprehensive corporate governance index and financial performance. The study adopted longitudinal research design. Data for independent variables were collected from published corporate governance reports while data for control variables were collected from the financial reports. The data was analyzed using descriptive statistics, correlation analysis and multiple regression analysis. The study found that corporate governance quality is significantly related with firm performance. Specifically, the study found that that board size and a comprehensive corporate governance index computed by Cytonn Investments had a positive and significant relationship with financial performance. The study recommends that it is important for manufacturing companies to increase the quality of their boards of directors. This is because high quality boards could help in enhancing the financial performance. The study recommends that the manufacturing firms should fully comply with the code of corporate governance practices for issuers of securities for companies listed at the Nairobi Securities Exchange.

Keywords: Board independence, board size, CEO duality, board meetings, corporate governance index, financial performance, manufacturing firms, Kenya.

Author Biographies

Florence Bosibori Nyaruri, The Catholic University of East Africa

Postgraduate Student, the Catholic University of East Africa

Henry Mburu, The Catholic University of Eastern Africa

Senior Lecturer, the Catholic University of East Africa

John Omurwa, The Catholic University of Eastern Africa

Lecturer, the Catholic University of East Africa

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Published

2019-08-28

How to Cite

Nyaruri, F. B., Mburu, H., & Omurwa, J. (2019). Relationship between Corporate Governance Quality and Financial Performance of Manufacturing Firms Listed at the Nairobi Securities Exchange. Journal of Finance and Accounting, 3(2), 39–55. Retrieved from https://stratfordjournals.org/journals/index.php/journal-of-accounting/article/view/322

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