Corporate Governance, Risk Management, Firm Characteristics, and the Performance of Commercial State-owned Enterprises in Uganda

Abstract

Despite embracing corporate governance, available evidence shows that Commercial Stateowned Enterprises (CSOEs) in Uganda are highly characterised by inefficiencies, financial irregularities, and poor risk management, leading to high leverage levels, high interest rates, and continuous poor performance. This study set out to establish the relationship between corporate governance, risk management, firm characteristics, and the performance of Commercial State- Owned Enterprises (CSOEs) in Uganda. The objectives of the study were to; determine the relationship between corporate governance and the performance of CSOEs in Uganda, establish the effect of risk management on the relationship between corporate governance and the performance of CSOEs in Uganda, examine the effect of firm characteristics on the relationship between corporate governance and the performance of CSOEs in Uganda, and establish the joint effect of corporate governance, risk management, and firm characteristics on the performance of CSOEs in Uganda. Four null hypotheses were created and empirically tested in accordance with the study objectives. The study adopted a cross section research design that involved the analysis of secondary data on corporate governance, firm characteristics, and firm performance and primary data on risk management. Panel data was collected from 34 CSOEs representing 75.5 percent of the originally sampled enterprises. The same enterprises provided primary data on risk management. The reliability of panel data was ensured by tracing the source documents from published audited reports of CSOEs, while that of primary data was tested using Cronbach Alpha Coefficients. Pearson correlations, random effects, and fixed effect regression analyses were used to test the study hypotheses. The study established a significant relationship between corporate governance through proxies of board composition, board characteristics, and audit committee independence, and the performance of CSOEs which led to the rejection of the associated null hypotheses. The study further established that risk management mediates the relationship between corporate governance through the proxy of board characteristics, and firm performance leading to the rejection of the null hypothesis. Risk management did not mediate the relationship between corporate governance through proxies of shareholding, audit committee independence and board composition and performance of CSOEs, hence the null hypotheses were not rejected. The study found no evidence of a moderating effect of firm characteristics on the relationship between corporate governance and CSOEs performance, allowing the null hypotheses not be to rejected. The study also found that corporate governance, firm characteristics, and risk management can jointly explain firm performance in a meaningful and positive way, resulting in rejecting the null hypothesis. It was concluded that improving corporate governance through aspects of board composition, board characteristics, and audit committee independence would improve CSOEs’ performance. It was also concluded that enhancing corporate governance while taking risk management into account leads to improved CSOEs’ performance. Firm characteristics have no moderating effect on the relationship between corporate governance and firm performance of CSOEs. It is recommended that risk management and firm size should be considered together by organizations attempting to improve their performance through corporate governance. Institutional, agency, contingency, and resource dependency theories were all validated in this study. The findings of the study are significant to CSOE policy-making entities in Uganda who may use the findings to formulate policies on ownership, and board composition, particularly in terms of gender diversity and board expertise. More study can be done in a broader context, involving both commercial and non-commercial state owned companies, and using a combination of quantitative and qualitative methodologies.