Corporate governance reforms and performance of companies listed at the Nairobi Stock Exchange

Abstract

The study sought to establish the correlation between corporate governance reforms and performance of companies quoted at the Nairobi Stock Exchange. The study targeted all the forty-nine companies listed at the Nairobi Stock Exchange under the Main Investment Market Segment (MIMS) and the Alternative Investments Segment (AIMS). A questionnaire was administered to all these companies. Forty-four companies responded giving a response rate of eighty-nine percent which was considered adequate for the study. Attributes of the companies that responded were obtained from the audited financial statements covering the period 1994 to 2003. Correlation analysis was used to establish the strength of the relationships between the various corporate governance attributes and company performance.

From the study it is evident that the type of executive compensation used by a company greatly impacts on the" performance of the company. Mixed results were obtained for the correlation between the size and composition of the board and company performance. But going per the trends and the guidance issued by the Capital Markets Authority, most the companies have average sized boards of between five and ten members. The Chief Executive Officer is also not the chairman of the board of directors.