Board Characteristics And Financial Performance Of Manufacturingfirms Listed At The Nairobi Securities Exchange In Kenya

ABSTRACT

Financial performance of the manufacturing sector contributes significantly to the economic development of both developing and developed economies. In, Kenya the Vision 2030 identifies the manufacturing sector as one of the key drivers for realizing a sustained annual gross domestic product growth, of tenpercent. However, the percentage contribution of manufacturing to the gross domestic product and merchandise exports has stagnated. Besides, financial performance of the Kenyan manufacturing sector has been depreciating.The weak performance is attributed to low investmentscaused byweak corporate governance practices in Kenya. Weak corporate governance has been reflected by a number of instances where board of directors among Kenya’s large companies, have been accused of poor corporate governance practices resulting to corporate failures.Therefore, the need to focus on corporate governance aspect of board characteristics in theKenyan manufacturing firms, since poor corporate boards’ can pose as a serious threat to financial performance of corporations. This study determinedthe effect of board characteristics on financial performance of manufacturing firms listed at the Nairobi Securities Exchange in Kenya. The specific objectives were to ascertain the effects of board size, board diversity and board independence on financial performance of listed manufacturing firms in Kenya. The study also determined the moderation effect of firm attributes on the relationship between board characteristics and financial performance of the listed manufacturing firms in Kenya. This study adopted a descriptiveresearch design. The target population for the study was13 manufacturing firms listed at the Nairobi Securities Exchange in Kenya during years 2009 to 2013. The study adopted the Survey Sampling Technique. The survey measured the entire target population and a census was carried out so as to systematically acquire and record information regarding secondary data on company boards for each of the thirteen listed firms. The study used secondary data sourced from the listed firms’ published annual reports and statistics. Secondary data usedwas retrieved from manufacturing firms’ websites, Nairobi Securities Exchange websites, Capital Markets Authority Library and Kenyan Investors website.The study utilizedboth descriptive and inferential statistics to analyze the data. The study estimated aPanelData Regression Model which was analysed using Stata 12. The study findings were presented in tables to enable effective and efficient interpretation.The study results indicated that board characteristics in regard to board size, board diversity and board independence has a significant effect on the financial performance of listed manufacturing firms in Kenya. The results also showed that firm attributes has a significant moderation effect on the relationship between board characteristics and financial performance. Based on the research findings, the study proposed that the listed manufacturing firms in Kenya should stick to the recommendedboard size, board diversity and board independence as the study found a significant relationship between board characteristics and financial performance.