Effect of Board of Directors’ Composition on Financial Performance of Companies Listed in Nairobi Securities Exchange

Abstract

Board management and corporate governance (CG) has received much attention in the current studies all over the world especially after many corporate scandals and the failures of some biggest firms around the world such as Commerce Bank (1991) Enron (2001), Adelphia (2002), and World Com (2002). Despite tight regulatory framework, Effective Board management continues to weaken in Kenya due to lack of professional management and governance malpractices. This study uses the current financial crisis as a quasi-experiment to examine whether and to what extent corporate boards affect the performance of firms. Therefore the purpose of this study was to establish the effect of board composition on financial performance of companies listed in Nairobi Securities Exchange. The study undertook to examine four objectives: to establish whether Board Gender influences financial performance of companies listed in Nairobi Securities Exchange; establish whether Board age influences financial performance of companies listed in Nairobi Securities Exchange; establish whether Board Ethnicity influences financial performance of companies listed in Nairobi Securities Exchange; establish whether Board Independence influences financial performance of companies listed in Nairobi Securities Exchange . The target population for the study comprised board executives and members in all listed companies quoted at the NSE for the period of five years from 2010 to 2014. The sample size included 65 board management and executives from the firms. The researcher employed descriptive survey research design and used secondary data obtained from the NSE and CMA library. With the aid of Statistical Package for Social Sciences Program (SPSS) version 19.0, A standard multiple regression model was used to establish the influence of board composition on performance of the firms listed under the NSE. Independent sample t-test was also used determine whether there was significant performance between executives and non-executives. The results were presented using tables in means, percentages and counts. The findings reveal that age had a unique and significant contribution to the performance of the Nairobi securities exchange, β=.382, p<.01 followed by level of education, β=.263, p<.01 and gender, which had a unique and significant contribution to the performance, β=.197, p<.01. The least were board independence and ethnicity which had (β=-.199, p<.05) and (β=-.195, p<.01) respectively. These findings can facilitate better firm‟s management by enhancing the knowledge of the Board members in overseeing the management of the Institutions