Board Characteristics And Financial Performance Of Manufacturing Firms Listed At The Nairobi Securities Exchange In Kenya

Abstract

Board characteristics are the structures, attributes and composition of a company's board of directors that can impact its governance, decision-making processes, and overall effectiveness of the firm activities. The manufacturing sector in Kenya plays a significant role in economic development. This study aimed at determine the effect of board characteristics on the financial performance of manufacturing firms listed at the Nairobi Securities Exchange in Kenya. The study had three objectives: to ascertain the effect of gender diversity, to determine the effect of board size, and to evaluate the effect of board independence on the financial performance of these firms. It focused on stewardship theory, upper echelon theory, and agency theory to explain corporate governance frameworks. A descriptive research design was adopted. The target population consisted of 233 respondents, categorized as Finance officers and Board Members from the 9 manufacturing firms listed at the NSE in Kenya. The study will use random sampling to select a sample size of 189 respondents. Primary data was collected using online Google Form structured questionnaires featuring closed-ended questions and a Likert Scale (1 strongly disagree to 5 strongly agree). The validity of the research instrument was determined by seeking expert opinions, including the researcher’s supervisor and lecturers in the Business Administration department at KCAU. Reliability was enhanced through a pilot study conducted on Kenya Breweries. Data analysis was carried out using SPSS version 26, with data entered in Excel and imported to SPSS. The analysis included descriptive, correlation, and regression analyses. Descriptive analysis provided statistical values such as mean, standard deviation, and percentages. Diagnostic tests; namely Normality; Multicollinearity; Autocorrelation; Homoscedasticity; linearity was conducted to ascertain the direction and extent of associations among variables. This approach ensured adherence to research best practices as guided by KCAU University and licensed by the National Science, Technology, and Innovation Commission. The study found that independent directors are essential for ensuring transparency and accountability, which improve financial performance. While gender diversity showed a positive but non-significant relationship with financial performance (Pearson correlation of 0.061, p-value of 0.507), board size exhibited a significant positive correlation (Pearson correlation of 0.863, p-value of 0.000), and board independence showed a significant correlation (Pearson correlation of 0.404, p-value of 0.000). The model explains 75.5% of the variance in financial performance (R² = 0.755), with a robust adjusted R² of 0.749. Gender diversity (p = 0.008), board size (p = 0.000), and board independence (p = 0.000) are all statistically significant predictors.