The Effect of Corporate Governannce on Financial Performance of Ktda Managed Factories in Kenya

Abstract

This study was carried to examine the relationship between corporate governance and financial performance for KTDA managed factories in Kenya. The study was motivated by the limelight about KDTA managed factories as a result of changes in the governance practices. The objective of the study was therefore to examine the effect of corporate governance and financial performance for KTDA managed factories in Kenya. The study used a descriptive research methodology. The target population for the study was board of directors for KTDA managed factories in Kenya. Simple random sampling was used to select 20 tea KTDA managed factories to participate in the study. Multiple regression analysis was used to examine the relationship between corporate governance practices and financial performance for KTDA managed factories. The study findings indicated that, for most of KTDA managed factories, there was no audit committee and the case where the audit committee is present, there were hardly any meetings. For most of the factories (86.9%) the audit committee reports to the chief Executive officer instead of reporting the chairman of the committee. The independence of the internal auditor seems compromised with 79.2% of the factories indicating that the internal auditor is not independent. Most of the factories had demonstrated recommendable practice with regards to disclosure and transparency. Financial performance varies at 49.5% for KTDA managed factories. The study variables at a correlation coefficient of 0.704.There is a relationship between corporate governance practices and financial performance for KTDA managed factories as expressed in the equation Y = 0.503 + 0.161 X1 +0.027 X2 – 0.304 X3+0.944 X4. The study concluded that there is a significance relationship between corporate governance practices and financial performance for KTDA managed factories. Weak positive correlation coefficient between corporate governance practice and financial performance could be an indicator that enhancing governance practices among KTDA managed factories could increase the financial performance. A negative correlation coefficient value between disclosure activities and financial performance could be an indicator that disclosure of activities reveal the true financial status for these factories and therefore could be a significant indicator in shaping cost policy for the organizations. The study recommended; an improvement in the adoption of standard corporate governance practices among KTDA managed factories, a need to reduce the gender gap by increasing the number of women in board of directors. It was recommended that a further study be carried out to examine the effect of corporate governance in other agricultural sectors such as sugar and coffee industry. A study could also be carried out on factors affecting the involvement of audit committee among KTDA managed factories in Kenya.