Board characteristics, foreign ownership and firm performance of listed firms at the Nairobi Securities Exchange in Kenya

Abstract

The majority of studies on Board characteristics acknowledges the Board's role as a board characteristics tool. Researchers have sought to determine the relationship between board composition characteristics and a performance measure. This was done in order to determine the important board composition variables and the consequences of adding or removing some of these variables throughout the process of forming successful boards. The objective of the study was to determine the moderating effect of foreign ownership and the relationship between board characteristics constructs and firm performance in Kenya. Specifically, the study sought to determine the moderating effect of foreign ownership on board independence, board size, board diligence, board expertise, and gender diversity on firm performance. The research was premised on agency theory, resource dependence theory, stewardship theory and social contract theory. The study used panel data research design, with a target population being all the firms that were active for the period 2012-2016. Secondary data was gathered from the information included in the Capital Markets Authority and Nairobi Securities Exchange Hand Books as well as the yearly financial statements of the companies. Multiple linear regression model was used to yield outputs for hypothesis testing; in addition diagnostic tests, that is, normality, linearity, multicollinearity, unit root, homoscedasticity and autocorrelation and data transformations were carried out using STATA v. 14.1. Descriptive and inferential statistics were also obtained. Only board competence was statistically significant at a 5% level of significance in determining the performance of NSE-listed enterprises, according to the study findings. It was also discovered that board foreign ownership has no moderating effect on the governance and firm performance components. This study therefore recommends a re-evaluation of members engaged at the board level through expertise by emphasizing a considerable package for remuneration to be in tandem with the structures of their day to day operations of the firm. Areas for further studies should include the inclusion of the larger East African Community with consideration of the extrinsic factors of political interference/instability and corruption as well as other performance measures such as Tobin Q and Return on Assets to explore the moderating effect of foreign ownership on firm performance.