Influence of Corporate Governance Attributes on Financial Performance of Microfinance Institutions in Nairobi County

Abstract

The issue of corporate governance is still a debate across the world, with some emphasizing its role in their firm performance whereas others underplay its role in some other business. The purpose of the current study was to establish the influence of corporate governance attributes on the financial performance of microfinance institutions in Nairobi. The specific objectives of the study were to: establish the influence of board size, board composition, chief executive characteristics, audit committee characteristics, and the firm's ownership type on the financial performance of Microfinance Institutions in Nairobi County. The study was guided by the stewardship theory, agency theory, and legitimacy theories. Nairobi city County MFIs (board members and CEOs and auditors) totaling 351 were considered for the study. Yamane formula was used to provide a sample of 187 respondents for the study. Primary data was collected through the drop and pick method through questionnaires, whereas secondary data was collected from financial newsletters, published financial statements. Data collected for the study was analyzed through descriptive analysis. Multilinear regression was conducted to establish the nature of the relationship between independent and dependent variables. Presentation of the results was done on tables and graphs. The study revealed that board size and financial performance had a significant relationship; board composition and financial performance had a significant relationship; chief executive characteristics and financial performance had a significant relationship; audit committee characteristics and financial performance had a significant relationship whereas ownership type and financial performance had an insignificant. The study concluded that board size, board composition, CEO characteristics, and audit committee had a positive and significant influence on the financial performance of MFIs in Nairobi County. However, ownership type did not significantly influence the financial performance of MFIs in Nairobi. The study recommended for an appropriate number of board members that were cos effective in decisions making, a good mix of directors of both executive and non-executive, men and women professionals and experienced members to ensure higher financial performance; CEOs who were independent, and well experienced in corporate governance knowledge; an audit committee that has financial professional skills and meets regularly to safeguard the institutions' assets and ownership comprising people who had the best interest of the institution.