Corporate governance and financial performance of state-owned enterprises in Kenya

Abstract

Purpose This paper aims to report the results of an investigation into the effect of aggregate and individual corporate governance factors on the financial performance of state-owned enterprises (SOEs) in Kenya. Design/methodology/approach The paper uses balanced panel data regression analysis on a sample of 45 SOEs in Kenya for a four-year period (2015–2018). Findings The panel data analysis results show that board meetings, board skill and gender diversity individual provisions of corporate governance are significantly and positively associated with capital budget realization ratio (CBRR). Moreover, the study finds that aggregate corporate governance disclosure index, board sub-committees, board size and independent non-executive directors are positive but insignificantly related to CBRR. Research limitations/implications The current study is based on secondary data, other methods of knowledge inquiry such as interviews and questionnaires may provide additional insights on the effectiveness of corporate governance on financial performance. Practical implications Overall, the results imply that corporate governance influences the performance of SOEs in Kenya. The results suggest that Mwongozo Code of Corporate Governance provisions should be changed to increase the number of women representations on board and the number of directors with doctoral qualifications because of their positive impact on the financial performance of SOEs in Kenya. Also, policymakers with remit over SOEs should re-evaluate why other corporate governance appear not to have an impact with a view of making the necessary changes. Originality/value The paper contributes to the dearth of literature on the efficacy of corporate governance on the financial performance of SOEs in developing countries.