Relationship Between Board Characteristics and Firm Performance: Survey of Firms Listed at the Nairobi Securities Exchange

Abstract

The formation of a board of directors in a corporation is important as an internal control mechanism to oversee the conduct of the owner-manager and managers and prevent them from endangering vested parties’ The role played by the board is critical to firm performance as the boards discharge their fiduciary responsibilities of leading and directing the firm. The main objective of this study was to establish the relationship between board characteristics and firm performance of listed firms at the Nairobi Securities Exchange. Specifically this study examined female representation, age, educational qualification, occupational experience, board independence and nationality and how they affect the firm performance of listed firms in Kenya. Firm performance was measured using Return on Equity (ROE). This study adopted a descriptive research design and data was analyzed using a multiple linear regression model. The study population was all the firms whose stocks were trading at the Nairobi Securities Exchange and which had reported their financial results for the year 2014, which were 61 firms. In this study emphasis was given to secondary data for companies listed at the NSE. The study found a positive relationship between all the six variables and firm performance of companies listed at the NSE. The study therefore recommends that stakeholders in listed companies should take into account the board characteristic issues in electing board of directors to minimize stakeholder conflicts, improve managerial functions and overall performance.