Corporate Governance, Financial Management Practices, Macroeconomic Variables and Performance of Agricultural Firms Listed at the Nairobi Securities Exchange, Kenya

doi:10.7176/rjfa/13-2-02

Abstract

Performance of listed agricultural firms at the Nairobi Securities Exchange contrasted since introduction of corporate governance framework in Kenya in the year 2002. This study examined the relationships among corporate governance, financial management practices, macroeconomic variables and performance of listed agricultural firms.The specific objectives were to determine the effect of corporate governance on performance of listed agricultural firms; to establish the intervening effect of financial management practices on the association between corporate governance and performance of listed agricultural firms; to find effect of moderation of macroeconomic variables on the relationship between corporate governance and performance of listed agricultural firms and to establish effect of joint relationship among corporate governance, financial management practices and macroeconomic variables on performance of listed agricultural firms. The study used agency theory, stakeholder theory, resource dependency theory and cash conversion theory. The study used a census approach and a target population of seven listed agricultural firms for a period of 2002-2016. Longitudinal descriptive research design was employed and data was collected from published annual firms’ reports and economic reports. Descriptive, inferential and panel regression analyses were performed. The study established that the relationship between corporate governance and Tobin’s Q is significant while the relationship between corporate and Returns on Assets to be insignificant. Occupational expertise, board age, and board tools had significant relationship with Returns on Assets, while board tenure and board meetings had significant relationship with Tobin’s Q. The intervening effect of financial management practices on the relationship between corporate governance and performance of listed agricultural firms was insignificant. The moderating of macroeconomic variables on the relationship between corporate governance and performance of listed agricultural firms was significant. The joint effect of corporate governance, financial management practices, and macroeconomic variables on performance of listed agricultural firms was significant. The study recommended that directors of listed agricultural firms to enhance corporate governance and financial management practices to achieve higher performance of listed agricultural firms. Keywords: Corporate Governance, Financial Management Practices, Macroeconomic Variables, Firm Performance, Listed Agricultural Firms in Kenya. DOI: 10.7176/RJFA/13-2-02 Publication date: January 31 st 2022

Highlights

Kenya is within middle income economy with 31.4% of its households solely engage in agriculture
3.0 RESEARCH METHODOLOGY This study used a census approach given a few number of agricultural firms listed in Kenya and a target population of 7 listed agricultural firms at the NSE for a period 2002-2016.These listed agricultural firms were targeted because they need to adhere to Kenya Capital Markets Authority (CMA) guidelines to corporate governance for continuous listing at the Nairobi Securities Exchange
Data for corporate governance, financial management practices and financial performance were extracted from published financial reports at CMA, while macroeconomic data extracted from Kenya Economic reports National Bureau of Statistics

Summary

Introduction

Kenya is within middle income economy with 31.4% of its households solely engage in agriculture It is the main source of income for both rural and urban households as it employs about 57% of total Kenyan labour force and contributes more than 65% of total exports and a generates more than 40% of total public revenues. Performance of listed agricultural firms in Kenya is not consistent under the period of study These firms are the major export earners and contribute more to the overall agricultural sector as they are involved in multiple agricultural activities. Performance of these firms are influenced by a number of factors some are agricultural inherent, while others are managerial, financial, technological, political, weather patterns, economic, oil prices, local and global regulations, global pandemics among others. There is high expectation that listed agricultural firms in Kenya should always generate positive financial performance but, this is not the case leading to inconsistent results

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Conclusion