Corporate governance structure and performance of manufacturing firms listed in the Nairobi stock exchange

Abstract

The broad objective of the study was to determine the relationship between various components of corporate governance structure and the performance of manufacturing firms listed in the NSE. The study was guided by the following specific objectives: To determine the relationship between firm performance and frequency of board meetings for manufacturing firms listed in the NSE between 1996-2006; To determine the relationship between board composition and firm performance in manufacturing firms listed in the NSE; To determine the relationship between the percentage of insider equity holding and firm performance in manufacturing firms listed in the NSE; and to determine the relationship between executive compensation and firm performance in manufacturing firms listed in the NSE. The study targeted 18 manufacturing companies that are listed in the NSE as at 30th June 2007. Data was obtained from the information centre at the Nairobi Stock Exchange and comprised observations for the period between 1996 and 2006. The key findings of the study revealed the existence of a linear relationship between various structures of corporate governance and performance of manufacturing firms listed in the NSE. Specifically, the findings revealed that there exists a perfect linear relationship between performance measures and the frequency of boards meetings; CEO compensation, board composition; and percentage of insider holding. The results were obtained through a regression-based F-TEST on each of the four performance measures (Tobin's Q; Return on Equity; Return on Assets; and Price-to-Earnings ratios) used in the study. It was recommended that adoption of sound corporate governance structures is critical for the success of manufacturing firms.