Influence of Corporate Governance on Financial Performance of Listed Corporations in Kenya

Abstract

Corporations with government shareholding in Kenya have served different purposes in different industries since their establishment during the colonial period. Despite tight regulatory framework, Corporate Governance continues to weaken in Kenya. The purpose of the study was to investigate the influence of corporate governance on financial performance of listed corporations with government shareholding in Kenya. Specifically, the study sought to examine the influence of financial transparency, internal audit standards, internal controls and ownership structure on financial performance of listed corporations with government shareholding in Kenya. The study was anchored on stakeholder theory, stewardship theory, agency theory, and resource dependence theory. This study adopted descriptive survey design. The target population of the study was 98 CEO’s, general managers and managers drawn from 12 corporations in Kenya with government shareholding. The study adopted census design where all target corporations were sampled. Primary data was collected using structured questionnaires while secondary data collection sheet was used to collect secondary data. Using collected data, descriptive statistics such as mean, standard deviation and frequency distribution were used to analyze the data. Data presentation was done by the use of charts, percentages and frequency tables Inferential statistics were used in drawing conclusions A t-test was conducted to test the significance of the results at 5% level of significance. Univariate tests were used to provide an insight using both parametric (t-test) and non-parametric test (Pearson correlation coefficient). Statistical Package for Social Science (SPSS) Version 25 was used for data analysis. The results showed that there was a moderate positive correlation between financial transparency, internal audit standards, internal controls, ownership structure and financial performance. Regression analysis results showed that financial transparency, internal audit standards, internal controls, ownership structure explain 71 per cent of variance in the financial performance of corporations. The study established that financial transparency leads to reduced conflicts between shareholders and managers. The corporations voluntarily provide forward looking information and the corporations are mandated by regulations to disclose all financial statements which are accessible to all stakeholders at any time. The study concludes that corporations targeted engage members who have financial knowledge and experience in the committees. The management of sampled corporations enjoys cordial relationships with audit committee and internal auditors observe professional ethics & standards. The study recommends that management of corporations should adhere to laid down regulations on financial disclosure to avoid agency conflicts with shareholders and creditors. The information disclosed by the corporation should be adequate to enable stakeholders to make informed decisions and should be forward looking. The study recommends that the management and regulators of listed corporations should only recruit and select those members who possess financial knowledge and experience to be part of internal audit committees.