Corporate Governance Practices and Organization Performance Among Deposit Taking Microfinance Institutions in Nairobi County, Kenya

Abstract

The purpose of this study was to assess the influence of corporate governance practices on organizational performance of Deposit Taking Microfinance Institutions in Kenya. The following specific objectives guided the research: to assess the impact of the corporate governance documentation, corporate governance framework, corporate governance policies and corporate governance reporting on the performance of Deposit Taking Microfinance Institutions in Nairobi County, Kenya. The study also investigated the moderating effect of corporate culture on the relationship between corporate governance practices and performance of DMFIs. A descriptive research design was employed to fulfill the study's objectives. All 13 registered Deposit Taking Microfinance Institutions in Kenya were included in the study's population. Primary and secondary data were used in the study. Measures of tendency such as means, frequencies, and standard deviations were used in data analysis. Tables and figures were be used to show the study's findings. From the correlation analysis, the study found out that all the variables including corporate governance documentation, corporate governance framework, corporate governance policies, corporate governance and corporate culture had a positive significant effect on the performance of the deposit taking microfinance institutions in Nairobi county (p<0.01). This was supported from the regression analysis where the corporate governance practices studied were found to explain 74.5% of the variations in performance of the deposit taking microfinance institutions in Nairobi county (R2=0.745). This confirms a strong positive relationship between CG practices and performance. The moderated regression analysis model further showed that 76.2% of performance of the DTMFIs can be accounted for by the independent variables when corporate culture was moderating the relationship (Δ Adjusted R2=0.017). The study therefore concludes that appropriate formulation and implementation of these CG practices as per each firms’ requirements is critical in ensuring improved organizational performance. The study also concludes that the type of corporate culture in an organization not only affect the type of corporate governance practices that are adopted by a particular firm, but also the resulting effect of organizational operations and organizational performance accrued in the long run. The study recommends that financial corporate reports must now contain more information due to the increased complexity of business, as investors rely on corporate information when making investment decisions. The study recommends that firms should adopt diverse board duties, share information with employees to ensure that they are committed to corporate governance principles, and give crucial information to shareholders through disclosure of information, particularly financial reports. The study also recommends that current organizational principles shouldn't interfere with their work, and the organizational culture should promote organizational performance. Further, the study also recommends that in order to ensure sound corporate governance across all industries, the policymakers take the appropriate actions.