Effect of Corporate Governance on Financial Performance of Telecommunication Firms in Kenya

Abstract

None of the studies done in Kenya has focused on effects of Corporate Governance on the financial performance in Kenya focused on the telecommunication industry despite its strategic role in enhancing the economic growth of Kenya. Informed by this knowledge gap, the study attempted to answer the following research question: what are the effects of Corporate Governance on the financial performance of telecommunication firms in Kenya? This study adopted a descriptive survey research design. The target population was telecommunication companies in Kenya which included Safaricom limited, Airtel, Telkom Kenya limited and YU. For the purpose of this study, the researcher used secondary data. Descriptive statistics was used to analyse quantitative data. Regression analysis was used to test the relationship between corporate governance and Financial Performance. From the findings, board size negatively affected the financial performance of the telecommunication firms in Kenya. The board structure as a corporate governance practice positively affected the financial performance. The CEO duality did not affect the financial performance. The board independence negatively affected the financial performance. The insider ownership positively affected the financial performance. The study recommends that the shareholders’ should not only reduce their firms’ board sizes but also shift their focus to the quality of the board of directors. The shareholders of the telecommunication firms should strive to create an optimal board structure that comprises of representatives of all the crucial stakeholders in the various subcommittees of the board. The shareholders should strive to create a board of directors with more dependent directors as opposed to independent directors. The employees and other internal parties should be allowed to hold some stake in the firms to give them a sense of ownership and commitment in running the affairs of the companies.