The Relationship between corporate governance and audit fees : a case study of non-financial companies listed on the Nairobi Securities Exchange
This thesis consisted of two empirical studies. First, it examined the relationship between corporate governance mechanisms (relating to boards’ of directors characteristics) and audit fees in the Kenyan context. Secondly, the study also examined compliance with the corporate governance disclosure requirements for listed companies in Kenya. The purpose of the study was firstly, to contribute to understanding how various boards’ of directors characteristics as required by the Capital Markets Act, Chapter 485A of the Laws of Kenya, (2002), affect external audit fees in Kenya. Secondly, the study sought to explore corporate governance disclosure aspects of listed companies in Kenya. The study adopted the pooled ordinary least squares regression model for a sample of thirty non-financial listed companies out of a population of fifty-three companies listed on the Nairobi Securities Exchange at the time the study was done. The multivariate regression results suggest that board expertise and board size are positively related to audit fees. The other characteristics of board independence and board diligence provide inconsistent results with audit fees. The control variables of total assets and complexity are significant; the financial risk and company leverage variables are found to be insignificantly related to audit fees. On the adequacy of corporate governance disclosure by listed companies in Kenya, a good system of corporate governance requires a good level of disclosure and adequate information to reduce information asymmetries between parties. The degree of disclosure results show that eight companies, that is, 26.6% have a corporate governance disclosure index of between 81% and 100%. This means that 73.4% of the companies in the sample did not attain the adequacy level; thus, the corporate governance disclosure level in Kenya is low. With regard to the relationship between boards’ of directors characteristics and the level of corporate governance disclosure compliance by listed companies in the Kenyan securities market, the multivariate regression results suggest that board independence is positively related to the level of corporate governance disclosure. The study finds no evidence that board diligence, board expertise and board size are related to the level of corporate governance disclosure compliance by listed companies. The control variables of total assets, company leverage and industry type 1 are significant; industry type 2, industry type 3 and industry type 4 are found to be insignificantly related to the level of corporate governance disclosure.