The Effect of corporate governance structures on firm performance among family-owned businesses in Nairobi County Kenya

Abstract

Family-owned businesses form a significant pillar of most economies across the globe because these organizations are a major contributor to wealth creation and employment creation. Most successful worldwide businesses started their activities as family businesses and have effectively become global brands. Like any other business though, corporate governance is a concern here too. Family business continuity plans are expected to establish a governance structure for the family and for the family business. These structures are aimed at improving procedural and control mechanisms of the family-owned company and for coordinating the correspondence and connection between family proprietors and business executives. With more and more family businesses opening to the world, such firms can no longer keep away from execution of the corporate governance standards for reasonable and transparent functioning. However, there is scanty empirical evidence on the extent to which corporate governance structures affect firm performance among family-owned businesses. Therefore, the fundamental aim of this study was to research the effects of corporate governance structures on firm performance by relying on resource-based theory and institutional theory. The specific objectives of the study were:-to determine the effect of ownership structure on firm performance of family-owned businesses in Kenya, to establish the effect of board structure on firm performance of family-owned businesses, and to establish the effect of management structure on firm performance. The study used a descriptive research design to collect data from a sample of 220 family-owned businesses; a structured questionnaire was employed to obtain data while analysis was done with the use of the statistical package for social sciences (SPSS). The quantitative data generated was subjected to descriptive statistical analysis, correlation and regression analysis. The study found that there was a significant and positive relationship between ownership structure and firm performance in family-owned businesses. Further, the study established that there was a positive significant relationship with CEO-duality, however women on board, board composition and board Committee were not significant in influencing firm performance in family-owned business. The study further found that separate chairman and CEO roles had a positive effect on a corporate’s reputation hence influence on the firm performance in family-owned businesses. The findings for management structures were observed to be positively related to firm performance. Of all the three structures ownership structure had a greater influence on firm performance. The recommendations of the study are: - hiring of a professional CEO, strategic differentiation to create more growth opportunities, introduction of a governance code by policy makers that accommodates the complexities of family businesses that are publicly traded. The study was however limited by the Covid – 19 crisis, where holding a one on one interview was a challenge following the government directive of social distancing, hence most of the interviews were done over the telephone. Information withholding was also another challenge encountered given the nature of family businesses.