Abstract
Performance of manufacturing firms listed at the Nairobi securities exchange has been varied since the introduction of the corporate governance policies and practices in the year 2002. This has been blamed to a number of factors including financial characteristics and macroeconomic factors. The specific objectives were to establish the effect of corporate governance on performance of manufacturing firms listed at the Nairobi securities exchange; to determine the intervening effect of financial characteristics on corporate governance and performance of manufacturing firms; to establish the moderating effect of corporate governance and performance of manufacturing firm; and to determine joint effect of corporate governance, financial characteristics, macroeconomic factors and performance of listed manufacturing firms at the Nairobi securities exchange. This study was anchored on, agency theory, stewardship theory, stakeholders’ theory and resource dependence theory. The study used census approach and a target population of 10 manufacturing firms listed at the Nairobi securities exchange between 2002 and 2016 were incorporated. This study employed longitudinal descriptive research design to determine relationships amongst independent, intervening, moderating and dependent variables. A panel data regression analysis was conducted using random effects model. The study findings revealed that corporate governance had insignificant effect on performance of listed manufacturing firms in Kenya; investments, leverage and liquidity significantly intervene in the relationship between corporate governance and performance of listed manufacturing firms; interest rate, inflation rate and growth domestic product rate, significantly affect returns on assets and Tobin’s Q of listed manufacturing firms in Kenya; and corporate governance, financial characteristics and macroeconomic factors were good predictors of listed manufacturing sector firms’ performance. Keywords : Firm performance, corporate governance, financial characteristics, macroeconomic factors, manufacturing firms, Nairobi securities exchange DOI : 10.7176/RJFA/10-22-08 Publication date: November 30 th 2019
Highlights
BackgroundInformation The relationship between corporate governance and performance of manufacturing firms, which is one of the most appealing and controversial issues, has received a lot of attention from many different countries all over the world after great corporate failures (Dang & Nguyen, 2016)
5.0 Conclusion and Recommendations The study concluded that manufacturing listed firms in Kenya strengthened their corporate governance due to poor performance, further the study concluded that corporate governance practices used by manufacturing listed firms failed to impact on performance
On the moderating effect of macroeconomic factors, the study concluded that unfriendly macroeconomic conditions act as a catalyst that enhances corporate governance activities such as frequency of board meetings to approve some of the immediate actions the management may wish to undertake to mitigate the effect of volatility in the macroeconomic environment
Summary
Information The relationship between corporate governance and performance of manufacturing firms, which is one of the most appealing and controversial issues, has received a lot of attention from many different countries all over the world after great corporate failures (Dang & Nguyen, 2016). Manufacturing firms practicing good corporate governance normally have good firm performance, and this is further influenced by financial characteristics and macroeconomic factors (CMA, 2015). Financial characteristics usually intervene in relationships between corporate governance and performance of manufacturing firms. Financial characteristics such as investments, leverage and liquidity are expected to have a positive impact on performance of manufacturing firms. The above conceptualization on the relationship between corporate governance, financial characteristics, macroeconomic factors and performance of manufacturing firms is explained by agency theory by Jensen and Meckling (1976), stewardship theory by Donaldson and Davis (1981), stakeholders’ theory by Freeman (1984) and resource dependency theory by Preffer and Salanuk (1970). Increase in interest rate drives cost of debt capital affecting investment, leverage, liquidity and performance of firms.
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