EFFECT OF BOARD COMPOSITION ON FINANCIAL PERFORMANCE OF LISTED FIRMS IN NAIROBI SECURITIES EXCHANGE
Abstract
Board composition is a critical element of corporate governance with the board mandated with supervisory and advisorial roles on a company’s management. This has created the belief that boards of directors can influence a firm’s strategic decision making and subsequently its performance. However, existing empirical studies provide conflicting results regarding the effect of board composition on firm financial performance. This called for a further analysis to determine the effect of board composition on financial performance of listed firms in Nairobi Securities Exchange. Using secondary data Collection over a period of 8 years (2010-2017) the study adopted a descriptive and quantitative research design. The target population was the 55 companies listed at the Nairobi Securities Exchange as of 2010. The study findings showed that an insignificant negative relationship between board size and the financial performance of the listed firms in Kenya; a significant negative relationship between CEO duality and the financial performance of the listed firms in Kenya; a significant positive relationship between board gender composition and the financial performance of the listed firms in Kenya and a significant positive relationship between board independence and the financial performance of the listed firms in Kenya. The study concluded that that CEO duality, board gender composition and board independence as board composition components had a signficant effect on the financial performance. The study also concluded that board size as a board composition component did not signficantly affect the financial performance. The study recommended that the listed firms should adopt a leadership position where the CEO and the Board Chair positions are distinct and hence held by two different persons instead of a situation where the firm’s CEO is also the board chair. In addition, the listed firms in Kenya should increase the proportion of female directors as well as the proportion of non-executive directors sitting in their boards.
Key Words: Board Size, CEO Duality, Gender Composition, Board Independence, Financial Performance
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DOI: http://dx.doi.org/10.61426/sjbcm.v5i4.952
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