Corporate governance and financial performance of water companies in Kenya

Abstract

Corporate governance has received its fair share of attention in the past decade due to various notable corporate scandals and collapses of large corporations which cause was traced to unethical business practices. Corporate governance is meant to create a balance between the interests of the management and the various stakeholders. It aims to ensure the company strives to achieve its set objectives whilst having the interests of all the stakeholders at heart. Amongst key indicators of success in business is financial performance of an entity. Financial performance generally refers to the financial health of an entity over a given period. It determines the return to shareholders. Financial performance of an entity is dependent on various factors. The target population in this study was all the 65 water companies in Kenya that were registered with WASREB as at 31st December 2015. 20 companies were selected for study based on the size of operations and period of existence. The study used secondary data. A data collection form was used to collect the data on corporate governance variables. The instrument was designed to capture a broad range of data required by the researcher and specifically capture the board size, CEO duality, existence of audit committee, and frequency of meetings and whether there are independent directors. Financial performance was represented by ROA, which is net income divided by Total Assets for the last three financial years 2011/12 to 2013/2015 and are available at the Auditor General and WASREB. The study finding indicated that all the independent variables have positive coefficient. The regression results above reveal that there is a positive relationship between dependent variable (overall performance) and independent variables (CEO duality, size of the board, number of the board meetings, board composition and size of the firm and gender diversity of board.