Effect of audit committee characteristics on financial performance of companies listed at the nairobi securities exchange

Abstract

The composition and character of the audit committee play significant role in influencing quality of an organization performance. However, very few studies have addressed or even shown how audit committee composition and character influence firm performance in developing countries such as Kenya. This research aims at establishing the effect of audit committee characteristics on firm performance among listed firms in Nairobi securities exchange, Kenya. To establish the effect of audit committee size on firm performance, to ascertain the impact of the number of independent auditors on firm performance, to determine the effect of audit committee gender diversity on firm performance and establish the effect of audit committee experience on firm performance. The study uses the agency theory and institutional theory. This study adopted an explanatory design. The study was conducted in firms listed on the Nairobi Securities Exchange for the period ranging from 2006 to 2011. The study thus utilized data from 46 companies as the other 14 companies had either been recently listed or had inconsistently traded in the NSE. Descriptive statistics such as means, standard deviation, frequencies and percentage were used to analyze data. In addition, Multiple Regressions was used because of its ability to use multiple independent variables to estimate their effect on a single dependent variable. Research findings showed that audit committee experience, committee gender diversity, audit committee size and number of independent auditors has a significant effect on firm performance. The presence of audit members with experience will also reduce financial misreporting and enhance quality monitoring. As such, having experienced audit committee members should be a key priority for firms. Also an increase in the number of female members bring on board a wide array of experiences and talents there is need to increase the proportion of independent auditors since an increase in their number reduces the chances of financial misreporting and leads to positive perception by investors there is need for firms to have an audit committee that is not too small such that there is lack of expert advice and not too large such that it has free riders that are prone to follow other members opinion