The effect of corporate governance on financial performance of companies listed at Nairobi security exchange

Abstract

The mam objective of this study was to investigate the effects of Corporate Governance on the financial performance of listed companies at (NSE) . Specifically, this study examined board size, board composition, CEO duality and leverage and how they affect the financial performance of listed Companies at (NSE). Firm performance was measured using Return on Assets (ROA) and Return on Equity (ROE). This study adopted a descriptive research design. The study population was all those Companies which were quoted on the Nairobi Securities Exchange as at December 2012.Secondary data were collected using documentary information from Company annual accounts for the period 2008 to 2012. Both descriptive and inferential statistics were used. Data was analyzed using a multiple linear regression model. The study found that a strong relationship exist between the Corporate Governance practices under study and the firms' financial performance. There was a positive relationship between board composition and firm financial performance. However, the most critical aspect of board composition was the experience, skills and expertise of the board members as opposed to whether they were executive or non executive directors. Similarly, leverage was found to positively affect financial performance of insurance firms listed at the NSE. On CEO duality, the study found that separation of the role of CEO and Chair positively influenced the financial performance of listed firms.