The Relationship Between Corporate Governance And Financial Performance Of Stock Brokerage Firms And Investment Banks In Kenya

Abstract

Corporate governance is an area that has grown rapidly in the recent years due to the global corporate scandals and collapse of big companies. The purpose of this paper is to empirically investigate the impact of corporate governance aspects (board size, board composition, separation of role of chairman and Chief Executive Officer, ownership structure (insider ownership), information disclosure and frequency of board meetings on financial performance of firms. The objective of the study is to determine the relationship between corporate governance and financial performance of stock brokerage firms and investment banks in Kenya. Return of Assets (ROA) was used as a measure of financial performance. The study used a causal design where primary data was collected from all the 19 stock brokerage firms and investment banks (members of Nairobi Securities Exchange) in Kenya using a questionnaire. The data was analyzed using statistical tools. The study found out that there exists a relationship between different aspects of corporate governance and firm’s financial performance. Board size had significant positive relationship on financial performance. Firms with bigger boards reported better results than those with smaller boards. Board composition had significant but negative relationship with financial performance. Firms with a higher proportion of non-executive directors performed worse than those with a smaller proportion. The study revealed no significant relationship between ownership structure (insider ownership), information disclosure and frequency of meetings with financial performance of firms.