Board Composition and Firm Performance: Evidence from Kenya

Abstract

There has been a renewed interest in the role of boards in performance of firms following several corporate scandals and failures and recurrent financial crisis around the world. This study examines the relationship between board composition and firm performance. Unlike most studies on board size which basically considers the number of directors on the board, this study includes diversity in the board with regards to gender. Gender diversity is determined by the number of female directors on the board. Based on existing literature, the study developed a conceptual framework and a set of hypotheses to examine the relationship between board composition and firm performance. The study adopts a descriptive survey design and tests the hypotheses on a sample of 49 firms over a five year period from 2003 to 2007. The sample includes all firms that were listed on the Nairobi Stock Exchange as of December 2007. Secondary data forms the basis of the main data source and data analysis is done using descriptive statistics and linear regression analysis guided by the ordinary least squares method of estimation. The findings of the study show that board size and gender diversity significantly influence firm performance, which leads to the recommendation, that managers and government policy makers must pay attention to the board composition.