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Research Paper | Management | Kenya | Volume 4 Issue 7, July 2015 | Popularity: 6.9 / 10

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Effects of Board Composition on Financial Performance of Banking Institutions Listed at Nairobi Securities Exchange

Waweru Henry Mburu, DR. Assumptah W. Kagiri

Abstract: CEO duality refers to a board leadership structure in which the Chief Executive Officer (CEO) is the Chairman of the Board (COB). The general objective of this study was to determine the relationship between board composition and financial performance of listed financial institutions at the Nairobi Securities Exchange. The specific objectives of the study were to, establish extent to which the size of the board affect the performance of listed financial institution in Kenya, determine the extent to which the proportion of independent non-executive directors affect the performance of listed financial institution in Kenya, and to establish the extent to which the CEO duality affect the performance of listed financial institution in Kenya. The study sought to investigate the relationship between board composition and financial performance of listed Banking companies in Kenya. The study made use of descriptive research study designand data was extracted from the institution through questionnaire administration. Correlation and multiple regression analysis were used for analysis. The results of the study were analyzed to see whether there is any effect of board composition on financial performance. The study also determined whether board composition have effect on financial performance of the firm by considering the board size, board independence and CEO duality and how they will be related to Return on Assets (ROA), at determined significant level. The study targeted 33 respondents but managed to achieve 29 respondents which was 88 % response rate. The study found that board size positively affected financial performance of commercial banks listed at the NSE. Accounting measures were presented using return on assets (ROA) and the regression model, reported adjusted R-square, ANOVA P-value and size of the board standard Beta co-efficient P-value of 0.632, 0.003 and 0.05 respectively, proportion of dependent and executive directors positively affected financial performance at the NSE. Results of the inferential statistics such as unstandardized regression coefficients show a positive effect on financial performance of banks listed at the NSE as revealed by the low p values. Accounting measures were presented using return on assets (ROA) and the regression model, reported adjusted R-square, ANOVA P-value and proportion of dependent and executive directors standard Beta co-efficient P-value of 0.632, 0.003 and -0.025 respectively. CEO duality and financial performance have positive relationship among listed financial firms in Kenya. Accounting measures were presented using return on assets (ROA) and the regression model, reported adjusted R-square, ANOVA P-value and proportion of dependent and executive directors standard Beta co-efficient P-value of 0.632, 0.003 and 0.319 respectively. The study recommends that, there should be separation of the positions of chairperson of the board and the CEO, Executive directors should have regular, frequent meetings without the CEO or other non-executive members of management present. The study suggested that independent variables like the age of the directors should also be tested to find out if it has significance to performance and a related study also could be carried out to find out board compositions aspects in non-listed financial institutions.

Keywords: Size of the board, proportion of independent Non-Executive Directors and CEO Duality

Edition: Volume 4 Issue 7, July 2015

Pages: 931 - 938

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