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Effects of Board Composition on Financial Performance: Empirical Analysis of Companies Listed at the Nairobi Securities Exchange

Author

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  • Eric M. Bosire

    (Accountant, (Judiciary of Kenya) Nairobi, Kenya.)

  • Vincent O. Ongore

    (Assistant Commissioner, (Kenya Revenue Authority) Nairobi, Kenya)

Abstract

The aim of this study is to find out the effects of board composition on financial performance of firms listed at the NSE. 46 firms participated in the study which adopted a survey research design and a census. The study deduced that independent board members as a component of board composition was not actually one of the predictors of a firm's financial performance. Board size did not significantly influence firm performance, but an assessment of board size in a composite model encompassing the other components of board composition led to the conclusion that board size actually had a significant influence on the firm's financial performance. The study also established that gender diversity has a significant positive influence on financial performance of a firm. In conclusion, board composition significantly influences firm performance when this relationship is moderated by the components of firm characteristics. The study recommended for the firms to adopt smaller boards accompanied by skill, experience, technology and organizational change strategies. Gender parity in corporate board will go a long way to bring about different perspectives of viewing business performance.

Suggested Citation

  • Eric M. Bosire & Vincent O. Ongore, 2015. "Effects of Board Composition on Financial Performance: Empirical Analysis of Companies Listed at the Nairobi Securities Exchange," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 23-43.
    • Handle: RePEc:eco:journ1:2015-01-03
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    References listed on IDEAS

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    2. Firas Farhan Jedi & Sabri Nayan, 2018. "An empirical evidence on the effect of women board representation on firm performance of companies listed in Iraq Stock Exchange," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(1), pages 117-131, January.
    3. Worraphan Trakarnsirinont & Wisuttorn Jitaree & Wonlop Writthym Buachoom, 2023. "Political Uncertainty and Financial Firm Performance: Evidence from the Thai Economy as an Emerging Market in Asia," Economies, MDPI, vol. 11(1), pages 1-12, January.
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    5. Laith A. Alaryan, 2017. "Exploring the Role of Board Characteristics on Enhancing Financial Performance of Jordanian Listed Companies," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(7), pages 99-105, July.
    6. David Onguka & Eramus S. Kaijage & Cyrus M. Iraya & Sifunjo E. Kisaka, 2019. "Influence of Corporate Control on Capital Structure for Companies Listed at the Nairobi Securities Exchange," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(2), pages 68-80, February.
    7. Abubakar Biu Aliyu & Onipe Adabenege Yahaya & Nma Ahmed Mohammed, 2021. "Board features and financial performance of Nigerian banks," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 10(1), pages 11-19, January.
    8. Gutiérrez‐Ponce Herenia & Chamizo González Julián & Manar Moffadi Awad Al‐mohareb, 2024. "Does corporate governance influence readability of the report by the chairman of the board of directors? The case of Jordanian listed companies," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(4), pages 3535-3550, July.
    9. Ivy Bach & Dr. Nathan Mwenda, 2023. "Effect of Board Size and Board Share Ownership on the Financial Performance of Commercial Banks Listed at the Nairobi Securities Exchange in Kenya," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(12), pages 1550-1556, December.
    10. Rachana Vishwakarma, 2017. "Women on Board and its Impact on Performance: Evidence from Microfinance Sector," Indian Journal of Corporate Governance, , vol. 10(1), pages 58-73, June.
    11. Hamid Mohsin Jadah & Logasvathi A/P Murugiah & Azira Binti Abdul Adzis, 2016. "The Effect of Board Characteristics on Iraqi Banks Performance," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 6(4), pages 205-214, October.
    12. Simona Galletta & Sebastiano Mazzù & Valeria Naciti & Carlo Vermiglio, 2022. "Gender diversity and sustainability performance in the banking industry," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(1), pages 161-174, January.

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    More about this item

    Keywords

    Corporate Governance; Board of Directors; Board Composition; Independent Directors; Board Size; Gender Diversity; Financial Performance;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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