Board Structure and Financial Performance of Commercial and Service Firms Listed at the Nairobi Securities Exchange, Kenya
DOI:
https://doi.org/10.55077/edithcowanjournalofstrategicmanagement.v9i1.150Keywords:
Board structure, board independence, board size, board tenure, board age, firm size, financial performance, Nairobi Securities ExchangeAbstract
Board structure is widely regarded as the central mechanism of internal corporate governance, shaping how firms are monitored, directed, and held accountable. In Kenya, commercial and service firms listed on the Nairobi Securities Exchange (NSE) have experienced a decline in financial performance despite the introduction of corporate governance guidelines in 2002, prompting renewed scrutiny of how boards are structured. This study examines the effect of board structure, comprising board size, board independence, board tenure, and board age, on the financial performance of commercial and service firms listed on the NSE, and further tests whether firm size moderates this relationship. The study is grounded in agency, stewardship, and stakeholder theories and adopts an ex-post facto research design. A census of the eleven commercial and service firms listed on the NSE was conducted using secondary panel data drawn from published financial statements for the period 2015 to 2022. Data were analysed descriptively and through correlation and panel regression techniques, with diagnostic tests for normality, multicollinearity, heteroscedasticity, autocorrelation, stationarity, and model specification informing the choice of a fixed-effects estimator with robust standard errors. The results show that board size has a negative but statistically insignificant effect on return on assets, while board independence has a positive and statistically significant effect. Board tenure shows a positive but insignificant effect, and board age a negative and insignificant effect. Firm size does not significantly moderate the relationship between board structure and financial performance. The findings indicate that among the structural attributes examined, the independence of the board, rather than its size, tenure, or the age of its members, is the attribute most consistently associated with stronger financial performance. The study recommends that Kenyan regulators strengthen requirements for outside-director representation on boards of listed firms and that firms themselves place greater emphasis on independence when constituting their boards.
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