EFFECT OF BOARD COMPOSITION ON PERFORMANCE OF FIRMS LISTED IN THE NAIROBI SECURITIES EXCHANGE
Abstract
Due to various scandals and failures of some big firms such as Commerce Bank, Enron, Adelphia and World Com, there has been reviewed interest on board composition attributes that have effect on firm outcomes. This thesis attempted to assess the effect of board composition on firms performance, specifically a case of Kenyan listed companies. The specific objectives of the study were to establish the effect of non-executive directors on performance of firms listed in Nairobi Securities Exchange and to assess the effect of directors’ nationality on performance of firms listed in Nairobi Securities Exchange. Firm performance was measured using Return on Equity ratio. The study adopted both descriptive and explanatory research designs. 45 firms listed between 2007 and 2013 in the Nairobi Securities Exchange were considered in the study hence census design was adopted. Secondary data was used to capture the performance of quoted companies for the last seven (7) consecutive years, that is, 2007 to 2013 filed at Capital Markets Authority. Both descriptive and inferential statistics were used. The study hypotheses were tested using pooled data from the 45 listed firms in Nairobi Securities Exchange between 2007 and 2013. The study found a statistically significant positive effect of board composition attributes in form of non-executive directors and directors nationality on firm performance. The study results further indicated that the resource dependence theory acts as an interlinkage model between board composition attributes specifically non-executive directors and directors nationality, and firm performance. Therefore, the practical contribution of this study has been to highlight the strategic composition of boards and dynamic consideration of the organizational context and needs for board linkages for management practice. The study recommends that future researchers to measure the benefits accrued from directors’ advice and counsel, legitimacy and channels of communication, support and resources and also assess whether the non-executive directors understand and act on these benefits.
Key Words; Non-Executive Directors, Directors Nationality and Firm Performance
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DOI: http://dx.doi.org/10.61426/sjbcm.v5i2.717
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