CHAPTER ONE INTRODUCTION 1.1 Background of the Study The corporate board is made up of three important characters namely the CEO, the inside directors who are in most cases senior managers of the firm, and outside directors, and all these have the knowledge of what a good and a bad project is. The main responsibility of the board is to offer vision and direction for any corporate entity. Indeed, the board is about the one most important constituency of a corporate entity. Every corporate board has at least one outside director. All outside director’s benefit from enhanced performance of the firm. The fundamental question that has escaped the needed attention is what determines a corporate board structure and its composition. The structure, role and impact of Board on Firm performance has been studied by scholars from different disciplines such as law, economics, finance, sociology, and organizational theory (Kiel, 2010) resulting to a number of contrasting theories and greater the difficulty of and this adversely affects a firm’s performance. The board of directors is charged with oversight of management on behalf of shareholders. Agency theorists argue that in order to protect the interests of shareholders, the board of directors must assume an effective oversight function. It is assumed that board performance of its monitoring duties is influenced by the effectiveness of the board structure. Firms are regarded as consisting of cognitive, normative and regulative structures and activities that give meaning to social behaviour (Ayogo, 2005). Societal norms have been seen to influence Board decisions regarding CEO selection and
Therefore, this study sought to fill this gap by critically evaluating the effect of board structure and firms’ financial performance of companies listed at the Nairobi Securities Exchange and determining what tasks in relation to board structure the companies respond to and how important these tasks are to the financial performance of firms listed at Nairobi Securities exchange by answering the following research question: What is the relationship between corporate board structure and financial performance of companies listed at Nairobi Securities Exchange? 1.3 Objectives of the Study The general objective of the study was to establish the relationship between corporate board structure and financial performance of companies listed in Nairobi Securities Exchange. The specific objectives were To establish the relationship between the board size and corporate financial performance. To determine the relationship between gender and corporate financial performance. To establish the effect of the number of board committees on corporate financial performance. To establish the relationship between board independence and corporate financial performance. 1.4 Value of the Study This study sought to provide an understanding of the linkage between board structure and financial performance in Nairobi Securities Exchange listed companies which is paramount to the need to have a robust team of decision makers with a broad range of
NSE 3 34.94 9 3 0.421 NSE 3 32.23 9 3 0.312 NSE 2 38.01 7 3 0.289 NSE 2 43.32 6 2 0.812 NSE 5 39.04 7 2 0.415 NSE 5 32.29 8 4 0.321 NSE 5 9 9 4 0.413 NSE 4 32.77 9 2 0.423 NSE 2 36.35 8 3 0.321 NSE 5 34.40 9 3 0.321 NSE 2 40.74 9 3 0.413 NSE L 4 43.60 9 3 0.324 NSE 5 39.02 7 8 0.413
NSE 3 35.46 6 9 0.378 LOCAL 3 37.54 4 9 0.423 NSE 4 38.65 4 9 0.372 NSE 4 32.58 5 8 0.423 Pan Africa Life Assurance Company NSE 6 36.67 5 8 0.315 NSE 5 41.10 5 8 0.432 NSE 2 43.82 5 7 0.423 NSE 5 41.77 4 6 0.267 NSE 4 38.83 6 8 0.415 NSE 5 38.51 7 9 0.534 NSE 4 37.02 6 9 0.325 NSE 3 34.25 4 7 0.462 NSE 6 30.64 5 6 0.432 NSE 6 31.72 7 9 0.392 NSE 2 43.02 6 7 0.423 Source, NSE report, 2013