CORPORATE GOVERNANCE AND PROFITABILITY OF GENGHIS CAPITAL LIMITED IN NAIROBI CITY COUNTY
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Keywords:
Corporate Governance, Profitability, Genghis Capital LimitedAbstract
Purpose: The purpose of this study was to establish the effect of corporate governance on profitability; a study of Genghis Capital Limited, Nairobi.
Methods: The study adopted a descriptive research design. The target population was 200 employees of Genghis Capital Limited. A stratified random sampling was used to select the sample. The sample size of the study was 107 employees. The study used questionnaires, containing both open ended and closed ended questions to obtain primary data. The questionnaires were self-administered. The instrument was also pretested with a sample of the respondents. The reliability of the instrument was estimated using Cronbach’s Alpha coefficient. Pilot test was done by administering the instrument to ensure congruence between field objections and the phenomena being researched.
Results: The results of the study indicated that board size, board independence, gender diversity, board competence are positively related with profitability. Board size, board independence, gender diversity, board competence were found to be satisfactory variables in explaining profitability. This is supported by coefficient of determination of 63.2%. Further, the results indicated that the overall model was statistically significant. This was supported by an F statistic of 40.418 and the reported p value (0.000) which was less than the conventional 0.05 significance level. Regression of coefficients results showed that board size, board independence, gender diversity, board competence and profitability are positively and significantly related.
Unique Contribution to Theory, Practice and Policy: The study recommends that Genghis Capital limited incoporates these board characteristics by restructuring the board so that it can reflect features mentioned above. Basing on the discussion above, having a manageable board size, independent board, gender sensitive board and a competent board can lead an organization to prosperity.
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References
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Becht, M., Bolton, P., & Röell, A. (2003). Corporate governance and control. Handbook of the Economics of Finance, 1, 1-109.
Bennedsen, M., Kongsted, H. C., & Nielsen, K. M. (2008). The causal effect of board size in the performance of small and medium-sized firms. Journal of Banking & Finance, 32(6), 1098-1109.
Bhagat, S., & Bolton, B. (2009). Corporate governance and firm performance: Recent evidence. Journal of Corporate Finance, 14(3), 257-273
Blumberg, B. F., Cooper, D. R., & Schindler, P. S. (2014). Business research methods. McGraw hill education.
Cheema, K. U., & Din, M. S. (2013). Impact of corporate governance on performance of firms: A case study of cement industry in Pakistan. Journal of Business and Management Sciences, 1(4), 44-46.
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Danoshana, S., & Ravivathani, T. (2013). The impact of the corporate governance on firm performance: A study on financial institutions in Sri Lanka. Merit Research Journal of Accounting, Auditing, Economics and Finance, 1(6), 118-121.
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Defee, C., Esper, L. & Mentzer, T. (2010). A Framework of Supply Chain Orientation. Research Paper
Donaldson, R. (2016). Non-executive directors. Governance Directions, 68(5), 298.
Duchin, R., Matsusaka, J.G., & Ozbas, O. (2010). When are outside directors effective? Journal of Financial Economics, 96(2), 195-214.
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Freeman, R. E. (1994). The politics of stakeholder theory. Business Ethics Quarter, 4(4), 409-421.
Gill, A., & Mathur, N. (2011). The impact of board size, CEO duality, and corporate liquidity on the profitability of Canadian service firms. Journal of Applied Finance & Banking, 1(3), 83-95.
Gursoy, G., & Aydogan, K. (2002). Equity ownership structure, risk taking, and performance. Emerging Markets, Finance & Trade, 38(6), 6-6.
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Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.
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Judge, W. Q., Naoumova, I., & Koutzevol, N. (2003). Corporate governance and firm performance in Russia: an empirical study. Journal of World Business, 38(4), 385-396.
Judge, W. Q., Naoumova, I., & Koutzevol, N. (2003). Corporate governance and firm performance in Russia: an empirical study. Journal of World Business, 38(4), 385-396.
Kang, H., Cheng, M. & Gray, S. J. (2007). Corporate Governance and Board Composition: Diversity and Independence of Australian Boards. The Journal of Corporate Governance, 15(2): 194–207.
Keasey, K. & Wright, M. (1993). Issues in Corporate Accountability and Governance. Accounting and Business Research. Vol. 23 (91a) Pages 291- 303
Keasey, K., Thompson, R. S. & Wright, M. (1997). Corporate Governance: Economic, Management and Financial Issues. Oxford: Oxford University Press.
Kim, K., A. & Nofsinger, J. R. (2007) Corporate governance, second edition, Pearson
Kota, H. M., & Tomar, C. (2010). Corporate governance practices of Indian firms. Journal of Management and Organisation, 16, 266-279.
Kutubi, S. S. (2001). Board of director’s size, independence and performance: An analysis of private commercial banks in Bangladeshi. World Journal of Social Sciences, 1(4), 159-178.
Kyereboah-Coleman, A., & Biekpe, N. (2006). The link between corporate governance and performance of the non-traditional export sector: evidence from Ghana. Corporate Governance: The international journal of business in society, 6(5), 609-623.
Latif, B., Shahid, M. N., Haq, M. Z., Waqas, H. M., & Aeshad, A. (2013). Impact of corporate governance on firm performance: Evidence from sugar mills of Pakistan. European Journal of Business and Management, 5(1), 51-59.
Linck, J. S., Netter, J. M., & Yang, T. (2008). The determinants of board structure. Journal of Financial Economics, 87(2), 308-328.
Mak, Y. T., & Li, Y. (2001). Determinants of corporate ownership and board structure: evidence from Singapore. Journal of Corporate Finance, 7(3), 235-256.
Mallin, C. A. (2004). Corporate Governance. New York: Oxford University Press
Morekwa Nyamongo, E., & Temesgen, K. (2013). The effect of governance on performance of commercial banks in Kenya: a panel study. Corporate Governance: The International Journal of Business in Society, 13(3), 236-248.
Mugenda, O. M. &Mugenda, A. G. (2012). Research methods: Quantitative and qualitative approaches, Acts Press, Nairobi, Kenya
OECD, (1999). OECD Principles of Corporate Governance, Paris: OECD
Oman, C. P. (2001), “Corporate Governance and National Development”, OECD Development Centre Technical Papers, Number 180.
Peng, M. W. (2004). Outside directors and firm performance during institutional transitions. Strategic Management Journal, 25(5), 453-471.
Pirsch, J., Gupter, S., & Grau, S. L. (2007). A framework for understanding corporate social responsibility as a continuum: an exploratory study. Journal of Business Ethics, 70, 125-140.
Rais, R. B., & Saeed, A. (2005). Regulatory Impact Assessment of SECP’s Corporate Governance Code in Pakistan. Lahore University of Management Sciences, Lahore. CMER Working Paper 06-39.
Rhoades, D., Rechner, P., & Sundaramurthy, C. (2000). Board composition and financial performance: a meta-analysis of the influence of outside directors. Journal of Managerial Issues, 12(1), 76-91.
Sami, H., Wang, J., & Zhou, H. (2009). Corporate governance and operating performance of Chinese listed firms. Journal of International Accounting, Auditing and Taxation, 152, 9-17
Shimizu, K., & K. Hitt. (2004). Strategic flexibility: organizational preparedness to reverse ineffective strategic decisions. Academy of Management Executive, 18(4), 44-59.
Short, H., Keasey, K., Wright, M., & Hull, A. (1999). Corporate governance: From accountability to enterprise. Accounting and Business Research, 29(4), 337-352.
Stephen, O. (2011). The role of non-executive directors in the profitability of Banks: A study of universal banks in Nigeria. International Journal of Business and Management, 6(2), 248.
The Organisation for Economic Co-operation and Development (2004) OECD Principles of Corporate Governance.
Uwuigbe, O. R. (2011). Corporate Governance And Financial Performance Of Banks: A Study Of Listed Banks In Nigeria. Unpublished PhD Thesis, Covenant University, Ogun State.
Velnampy. T & Pratheepkanth P. (2012). Portfolio Structure and Performance: A Study on Selected Financial Organisation in Sri Lanka, Opinion: International Journal of Business Management,2(2).
Weisbach, M. (1988). Outside directors and CEO turnover. Journal of Financial Economics, 20(1), 431-460.
Wessels, R., & Wansbeek, T. (2014). What is the relation (if any) between a firm’s corporate governance arrangements and its financial performance? CESifo Working paper 4599.
Wu, H.-L. (2008). When does internal governance make firms innovative? Journal of Business Research, 61, 141-153.
Agle, B., Donaldson, T., Freeman, E., Jensen, M., Mitchell, R., & Wood, D. (2007). Dialogue: Toward Superior Stakeholder Theory. London: Cambridge University Press
Akinsulire, O. (2011). Financial Management (7th ed.). Lagos: El-Toda Ventures Ltd.
Akinyomi, O. J. (2013). Impact of board structure on corporate financial performance. International Journal of Research in Commerce, IT and Management, 3(6), 135-139.
Alagathurai, A. (2013). Impact of Corporate Governance Practices on Firm Capital Structure and Profitability: A Study of Selected Hotels and Restaurant Companies in Sri Lanka. Research Journal of Finance and Accounting, 4(10).
Armstrong, P. (1997). Corporate Governance in Common Wealth Countries. Commonwealth leadership forum resolution, Edinburgh.
Becht, M., Bolton, P., & Röell, A. (2003). Corporate governance and control. Handbook of the Economics of Finance, 1, 1-109.
Bennedsen, M., Kongsted, H. C., & Nielsen, K. M. (2008). The causal effect of board size in the performance of small and medium-sized firms. Journal of Banking & Finance, 32(6), 1098-1109.
Bhagat, S., & Bolton, B. (2009). Corporate governance and firm performance: Recent evidence. Journal of Corporate Finance, 14(3), 257-273
Blumberg, B. F., Cooper, D. R., & Schindler, P. S. (2014). Business research methods. McGraw hill education.
Cheema, K. U., & Din, M. S. (2013). Impact of corporate governance on performance of firms: A case study of cement industry in Pakistan. Journal of Business and Management Sciences, 1(4), 44-46.
Cheung, S. Y. L., & Chan, B. Y. (2004). Corporate governance in Asia’, Asia-Pacific Development Journal, no. 11, pp. 1-31.
Choe, H., & Lee, B. S. (2003), ‘Korean bank governance reform after the Asian financial crisis’, Pacific-Basin Finance Journal, no. 11, pp. 483-508.
Chuanrommanee, W., & Swierczek, F. W. (2007). Corporate Governance in ASEAN Financial Corporations: reality or illusion?. Corporate Governance: An International Review, 15(2), 272-283.
Danoshana, S., & Ravivathani, T. (2013). The impact of the corporate governance on firm performance: A study on financial institutions in Sri Lanka. Merit Research Journal of Accounting, Auditing, Economics and Finance, 1(6), 118-121.
Dar, L. A., Naseem, M. A., Rehman, R. U., & Niazi, G. S. (2011). Corporate governance and firm performance: A case study of Pakistan oil and gas companies listed in Karachi Stock Exchange. Global journal of management and business research, 11(8), 1-9.
Defee, C., Esper, L. & Mentzer, T. (2010). A Framework of Supply Chain Orientation. Research Paper
Donaldson, R. (2016). Non-executive directors. Governance Directions, 68(5), 298.
Duchin, R., Matsusaka, J.G., & Ozbas, O. (2010). When are outside directors effective? Journal of Financial Economics, 96(2), 195-214.
Franks, J., & Mayer, C. (2001). Ownership and control of German corporations. Review of Financial Studies, 14(4), 943-977.
Freeman, R. E. (1994). The politics of stakeholder theory. Business Ethics Quarter, 4(4), 409-421.
Gill, A., & Mathur, N. (2011). The impact of board size, CEO duality, and corporate liquidity on the profitability of Canadian service firms. Journal of Applied Finance & Banking, 1(3), 83-95.
Gursoy, G., & Aydogan, K. (2002). Equity ownership structure, risk taking, and performance. Emerging Markets, Finance & Trade, 38(6), 6-6.
Gürsoy, G., & Aydoğan, K. (2002). Equity ownership structure, risk taking, and performance: an empirical investigation in Turkish listed companies. Emerging Markets Finance & Trade, 6-25.
Hermalin, B. E., & Weisbach, M. S. (2001). Boards of directors as an endogenously determined institution: A survey of the economic literature (No. w8161). National Bureau of Economic Research.
Hermalin, B. E., & Weisbach, M. S. (2003). Boards of Directors as an Endogenously Determined Institution: A Survey of the Economic Literature (Digest Summary). Economic Policy Review, 9(17-26).
Jackling, B., & Johl, S. (2009). Board structure and firm performance: evidence from India’s top companies. Corporate Governance: An International Review, 17(4), 492–509.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.
John, K. & L. W. Senbet (1998) Corporate Governance and Board Effectiveness. Journal of Banking and Finance 22: (May), 371-403.
Judge, W. Q., Naoumova, I., & Koutzevol, N. (2003). Corporate governance and firm performance in Russia: an empirical study. Journal of World Business, 38(4), 385-396.
Judge, W. Q., Naoumova, I., & Koutzevol, N. (2003). Corporate governance and firm performance in Russia: an empirical study. Journal of World Business, 38(4), 385-396.
Kang, H., Cheng, M. & Gray, S. J. (2007). Corporate Governance and Board Composition: Diversity and Independence of Australian Boards. The Journal of Corporate Governance, 15(2): 194–207.
Keasey, K. & Wright, M. (1993). Issues in Corporate Accountability and Governance. Accounting and Business Research. Vol. 23 (91a) Pages 291- 303
Keasey, K., Thompson, R. S. & Wright, M. (1997). Corporate Governance: Economic, Management and Financial Issues. Oxford: Oxford University Press.
Kim, K., A. & Nofsinger, J. R. (2007) Corporate governance, second edition, Pearson
Kota, H. M., & Tomar, C. (2010). Corporate governance practices of Indian firms. Journal of Management and Organisation, 16, 266-279.
Kutubi, S. S. (2001). Board of director’s size, independence and performance: An analysis of private commercial banks in Bangladeshi. World Journal of Social Sciences, 1(4), 159-178.
Kyereboah-Coleman, A., & Biekpe, N. (2006). The link between corporate governance and performance of the non-traditional export sector: evidence from Ghana. Corporate Governance: The international journal of business in society, 6(5), 609-623.
Latif, B., Shahid, M. N., Haq, M. Z., Waqas, H. M., & Aeshad, A. (2013). Impact of corporate governance on firm performance: Evidence from sugar mills of Pakistan. European Journal of Business and Management, 5(1), 51-59.
Linck, J. S., Netter, J. M., & Yang, T. (2008). The determinants of board structure. Journal of Financial Economics, 87(2), 308-328.
Mak, Y. T., & Li, Y. (2001). Determinants of corporate ownership and board structure: evidence from Singapore. Journal of Corporate Finance, 7(3), 235-256.
Mallin, C. A. (2004). Corporate Governance. New York: Oxford University Press
Morekwa Nyamongo, E., & Temesgen, K. (2013). The effect of governance on performance of commercial banks in Kenya: a panel study. Corporate Governance: The International Journal of Business in Society, 13(3), 236-248.
Mugenda, O. M. &Mugenda, A. G. (2012). Research methods: Quantitative and qualitative approaches, Acts Press, Nairobi, Kenya
OECD, (1999). OECD Principles of Corporate Governance, Paris: OECD
Oman, C. P. (2001), “Corporate Governance and National Development”, OECD Development Centre Technical Papers, Number 180.
Peng, M. W. (2004). Outside directors and firm performance during institutional transitions. Strategic Management Journal, 25(5), 453-471.
Pirsch, J., Gupter, S., & Grau, S. L. (2007). A framework for understanding corporate social responsibility as a continuum: an exploratory study. Journal of Business Ethics, 70, 125-140.
Rais, R. B., & Saeed, A. (2005). Regulatory Impact Assessment of SECP’s Corporate Governance Code in Pakistan. Lahore University of Management Sciences, Lahore. CMER Working Paper 06-39.
Rhoades, D., Rechner, P., & Sundaramurthy, C. (2000). Board composition and financial performance: a meta-analysis of the influence of outside directors. Journal of Managerial Issues, 12(1), 76-91.
Sami, H., Wang, J., & Zhou, H. (2009). Corporate governance and operating performance of Chinese listed firms. Journal of International Accounting, Auditing and Taxation, 152, 9-17
Shimizu, K., & K. Hitt. (2004). Strategic flexibility: organizational preparedness to reverse ineffective strategic decisions. Academy of Management Executive, 18(4), 44-59.
Short, H., Keasey, K., Wright, M., & Hull, A. (1999). Corporate governance: From accountability to enterprise. Accounting and Business Research, 29(4), 337-352.
Stephen, O. (2011). The role of non-executive directors in the profitability of Banks: A study of universal banks in Nigeria. International Journal of Business and Management, 6(2), 248.
The Organisation for Economic Co-operation and Development (2004) OECD Principles of Corporate Governance.
Uwuigbe, O. R. (2011). Corporate Governance And Financial Performance Of Banks: A Study Of Listed Banks In Nigeria. Unpublished PhD Thesis, Covenant University, Ogun State.
Velnampy. T & Pratheepkanth P. (2012). Portfolio Structure and Performance: A Study on Selected Financial Organisation in Sri Lanka, Opinion: International Journal of Business Management,2(2).
Weisbach, M. (1988). Outside directors and CEO turnover. Journal of Financial Economics, 20(1), 431-460.
Wessels, R., & Wansbeek, T. (2014). What is the relation (if any) between a firm’s corporate governance arrangements and its financial performance? CESifo Working paper 4599.
Wu, H.-L. (2008). When does internal governance make firms innovative? Journal of Business Research, 61, 141-153.
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Published
2019-07-18
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Malonza, F. K., & Mohinder, P. J. (2019). CORPORATE GOVERNANCE AND PROFITABILITY OF GENGHIS CAPITAL LIMITED IN NAIROBI CITY COUNTY. European Journal of Business and Strategic Management, 4(4), 55 – 75. Retrieved from https://www.iprjb.org/journals/index.php/EJBSM/article/view/941
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