Board characteristics and firm performance : evidence from Kenya

Chemweno, Eliud Cheruiyot
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Strathmore University
The board of directors is charged with the responsibility of facilitating changes that support the mission of the organization to realize its vision. In the recent past, a number of organizations listed in the NSE have collapsed with the board of directors taking the blame. However, for the boards to execute their functions effectively there is a need for exclusive competency that contributes to the sustainability of the organization in the long run. Therefore, given the importance of any board, it is vital to identify and assess their characteristics and its consequent impact on organizational performance. This study explored the relationship between board characteristics and organizational performance. In common with similar studies, board characteristics is operationalized by six variables, namely audit committee independence, board size, board expertise, board independence, board gender diversity and board diligence. Performance is measured by return on assets (ROA2). The sample for the study is the 42 companies which were continuously listed in the Nairobi Securities Exchange between 2010 and 2014. Data for analysis comprised company-specific data as well as published information from the annual reports.. The choice of five year period for this study was informed by two reasons. Firstly, it is the medium term following the revision of Corporate Governance rules with guidelines issued in 2002 being revised in 2010. Secondly, the new constitution,2010 provides in Chapter 6 on Leadership and Integrity a number of key governance provisions that are applicable to the private sector.. The study used Fixed Effects Model (FEM) in estimating the hypothesized relationship between board characteristics and firm performance. Hypotheses were tested at 1%, 5% and 10% significance levels. From the study results, it was revealed that organizational performance was significantly influenced by board independence while other board characteristics were found to be statistically insignificant. The study further found that the firm characteristic with significant moderating effect were firm size and firm leverage.
Submitted in partial fulfillment of the requirements for the Degree of Masters in Business Administration
firm performance, Board characteristics, Kenya