Africa Int ernation al Journal of Management Educ ation and Gov ernanc e (AIJMEG) 1( 1):1-15 (ISSN: 2518 -0827)

Africa International Journal of Management Education and Governance

(AIJMEG) 1(1)
Oasis International Consulting Journals, 2016 (ISSN: 2518-0827)

Board Diversity and Financial Performance; Evidence from Kenya

Corresponding Author: Ombaba K. B. Mwengei- Garissa University College

ABSTRACT
Received 30th April Accepted 26 May 2016
Using panel data from firms listed on the Nairobi Securities Exchange during the period
2004-2014, this paper examines the effect of board diversity and firm performance. Specifically
the study investigates the effect of independent directors, board size, gender and financial
expertise of directors and firm performance. The study finds, steadily with trends in most
countries, the representation of women on the corporate board remains low. Regression results
indicate that board independence has a negative and significant relationship on firm
performance. The study also finds that gender diverse boards perform better as measured by
Return on Assets (ROA).

Key Words; Gender, diversity, Financial Performance, Independent directors and Financial
Expertise

Background of the Study developed and other developing economies

are struggling to attract resources for
Capital market participants, in particular
investment in an increasingly competitive
institutional investors and ethical funds, are
global environment. Secondly, events at
paying closer attention to the governance
Enron, Worldcom, Barings Bank, Imarbank,
and top management of listed companies.
and Lehman brothers had on the global
One common desideratum is to increase the
economy among others supports the need
representation of different stakeholders.
for policies to promote aspect of corporate
The board of directors has long been
governance.
recognized as an important corporate
Although most of the literature recognizes
governance mechanism for aligning the
the role of the board in financial
interests of managers and all stakeholders
performance, there is scant evidence
to a firm. The need to adopt the right
concerning the role of boards of directors in
corporate governance mechanisms is driven
such management decisions. It is quite
by the agency problem and the associated
perplexing, particularly when corporate
free-rider problem that makes it difficult for
governance guidelines all over the world
any single investor or stakeholder to bear
empower boards of directors with the
the cost of monitoring managers (Sanda,
mandate to oversee the running of
2011).
corporate entities and are held accountable
The central role of board of directors in this
for corporate performance. More so, all
process has therefore been recognized and
managerial decisions are presented to the
in recent years has gained significant
board of directors for approval; thus,
attraction for at least two reasons. First both
Afr. Int. Mgt. Edu and Governance

decisions about whether a firm will borrow

or not require the approval of the board. We Kenyan Context
therefore propose that because boards of Trading in shares in Kenya started growing
directors monitor and advise management in 1954 when the Nairobi Stock Exchange
concerning the firms decisions, financial (NSE) was constituted as a voluntary
performance of the firm is influenced by the organization of stockbrokers (Ngugi, 2003).
composition of the board. The introduction of NSE saw the
Most of emerging economies, a typical firm introduction of rules and regulations
is characterized by weak corporate governing stock trading, along with
governance mechanisms, concentrated initiatives to promote the capital market,
ownership, family ownership, and higher such as the Capital Issue Committee (CIC)
levels of managerial power (Al Farooque et and Capital Market Authority (CMA),
al., 2007; Jackling and Johl, 2009; Young et established in 1990 through the Capital
al., 2008; Gottardo and Moisello, 2013). To Market Authority Act (Cap 485A) in order
worsen this situation, even when to regulate stock market activities (Kemboi
goodcorporate governance mechanisms are and Tarus, 2012). The CMA had a mandate
in place, weak legal and institutional to regulate corporate governance
mechanisms makeit difficult for firms to be mechanisms of the firms listed on the stock
governed. Typical corporate governance exchange.
research has focused on developed
In this regard, the authority initiated a
countries (Rajagopalan and Zhang, 2008;
number of measures to address issues of
Perrini et al., 2008; Harford et al., 2008;
corporate governance: for instance, it
Yoshikawa and Phan, 2005) to the exclusion
facilitated the enactment of the corporate
of emerging countries. However, a small
governance code, in the form of a Sample
amount of research has been carried out
Code of Best Practice of Corporate
into the extent to which corporate
Governance in Kenya 2002, in order to
governance issues in developed countries
strengthen governance mechanisms among
are applicable to emerging countries
Kenyas listed firms (Tarus and Aime, 2014).
(Jackling and Johl, 2009). However, these
Among the corporate governance structures
studies into emerging markets have been
suggested, in order to improve the quality
carried out in Asia, and the Middle East
of decisions in the listed firms, was the
which have unique corporate governance
composition of the board (The Capital
mechanisms that differ greatly from those
Market Act, Cap. 485A, 2002).
in Kenya.
The motivation for studying corporate The corporate governance guidelines and
governance in an emerging country such as regulations for intermediaries provided by
Kenya arises due to the increasing capital market authority (CMA)
application of corporate governance recommends that one third of board
guidelines and the absence of empirical members should be independent and the
studies linking corporate governance to board should have at least eight board
financial performance. members. The guidelines further requires

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that the CEO and chairman positions This study sought to analyse the
should not be held by one person, otherwise relationship between board diversity and
the authority should be notified the reason financial performance in Kenya, using a
thereby. It also states that the board should panel of 39 Kenyan firms listed on the
have a balance of skills, experience and Nairobi Securities Market during the period
members should be from various 2004-2014, using a Random Effects
backgrounds. Furthermore, the CMA regression analysis. This paper contributes
guidelines require that outside directorship to the extant literature along the following
by board members be not more than five. dimension. Firstly, to the best of our
The guidelines also require that all directors knowledge, this study is the first in the
shall be needed to submit themselves for re- literature to examine the relationship
election at regular intervals and at least between board diversity and financial
once every three years. performance in Kenya. Secondly, this study
Despite of widespread regulatory reforms provides evidence that board diversity is
undertaken to improve corporate related to the financial performance of
governance mechanism, Kenya is firms. Specifically, the study found that
characterized by a weak legal and board size and board independence
regulatory framework (Tarus, 2011; Gakeri, significantly influence financial
2013) just like any other emerging economy. performance.
For instance, in the past few years there
The paper is organized as follows: In section
have been a number of corporate failures
2 we discuss related theories and formulate
occasioned by financial distress among
our hypotheses. Section 3 describes the way
listed firms. This phenomenon of financial
in which we constructed the sample and the
difficulties in Kenyan public companies has
specification of the model. Section 4
been witnessed by the increase delisting of
presents the results of our descriptive and
companies. Notable cases of corporate
multivariate analysis of the relationship
failure include Kenya Bulk medical limited,
between board diversity and financial
A Baumann, Kenya Corporative
performance. Finally, Section 5 provides
Creameries, Uchumi Supermarkets, and
discussion and concluding remarks.
CMC Kenya Ltd., in 2012 among others
Theory and Hypotheses development
(Ngugi et al., 2009).
Two organization theories, resource
The main reasons attributed to these dependence theory and agency theory,
corporate failures are their inefficient provide the broad theoretical
boards (Waweru, 2014). Although CMA has underpinnings for how board diversity
enacted and implemented the corporate influence firm performance. Resource
governance guidelines, there remains a dependence theory offers the rationale for
need to determine whether board the boards function of providing critical
composition and a corporate governance resources to the firm including legitimacy,
mechanism enhance effective decision advice, and counsel (Hillman and Dalziel,
making in Kenya. 2003). These board resources offer the

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corporation support in understanding and discussed in the literature, such as board

responding to its environment (Boyd, 1990) independence, board size, financial
that can help it better manage performance. expertise and women.
Agency theory is based on the premise that
executives are opportunistic and that they Board Size
pursue selfish interests to the detriment of Board size is an important determinant of
shareholders (Jensen and Meckling, 1976). corporate governance effectiveness (Jackling
This divergence of interests precipitates and Johl, 2009). Resource dependency
conflicts between shareholders and theory suggests that increased size may
management, which results in agency cost. yield benefits to the firm by providing a
One of the major costs incurred by network to the external environment and by
shareholders is the need to monitor securing a broader resource base (Pfeffer
management through the introduction of a and Salancick, 1978; Pearce and Zahra,
layer of scrutiny in the form of a board of 1992). Board size is defined as the total
directors (Fama, 1980; Fama and Jensen, number of directors on the board in a
1983). The board of directors is charged particular year (Maeri et al., 2014).
with the responsibility of monitoring the According to Jackling and Johl (2009) board
decisions and actions of management, size is an important determinant of
thereby reducing opportunistic behavior. corporate governance effectiveness.
Resource dependency theory board size can
Agency theory provides the rationale for be viewed as a proxy to measure the
the boards critical function of monitoring diversity of the knowledge pool and the
management on behalf of the shareholders availability of resources provided by the
(Eisenhardt, 1989; Fama and Jensen, 1983). board. A larger board is more likely to have
In order to exercise its monitoring function a wider range of skills, knowledge and
the board needs the appropriate mix of expertise which in turn may contribute to
experience and capabilities to evaluate both its monitoring and servicing roles
management and assess business strategies (Corbetta and Salvato, 2004). Moreover a
(Hillman and Dalziel, 2003). A third large board may counter the influence of the
organization theory, signaling, provides an CEO (Maereet al., 2014). As per agency
additional basis for our discussion of the theory the main argument in favor of a
relationship between board gender larger board of directors is that the increase
composition and firm performance. in the number of members raises their
disciplinary control over the CEO (Brdart,
Boards of directors have different 2014).
characteristics, which all contribute to firms Larger board impedes the coordination,
corporate governance mechanisms, though which prevents boards from participating in
some characteristics provide more strategic decision making and in turn
controlling mechanisms than others. In this lowering both the monitoring and service
study, we examine some of the variable roles (Raheja, 2005; Harris and Raviv, 2008).
facets of board diversity that are commonly More often than not, in the case of large

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boards the members get divided into sub- interests of the shareholders is, however,
groups who are at loggerheads with each one of the most debated and researched
other which do more harm than good to the issues in corporate governance.
company (Cadbury, 2002) compared small Most importantly, scholars argue that the
boards. The argument behind this view is presence of independent directors enhances
drawn from a managerial entrenchment the protection of shareholders interests by
perspective, which postulates that when increasingthe effectiveness of
boards are small they act as active monitors, decisionmaking and monitoring executives
thereby reducing managerial entrenchment. (Baysinger and Butler, 1985; Mishra and
Relatedly, because small boards are Nielsen, 2000; Young, 2000; Uzun et al.,
effective in monitoring management, they 2004). However, in spite ofthis, others argue
are likely to influence the decisions of that independent directors may not provide
managers.Therefore, smaller boards are much sought after effectiveness, for several
effective in controlling managers and in reasons: for instance, such directors are less
influencing managerial decisions, resulting knowledgeable and lack the necessary
in higher firm performance. Thus, we handson experience to question
propose that management effectively
(Roberts et al.,2005); they may also get over
Hypothesis 1: A small board is positively
involved in executive decisions, thereby
related to financial performance
creating self destructive friction between
Board Independence management and independent directors
Independent director is a director who has (Roberts et al.,2005) further, in some cases,
no affiliation with the firm other than the independent directors may be dominated
affiliation derived from being on the firms by management, thereby rendering
board of directors (Beasley, 1996). The independent directors mere rubberstamps
Kenyan Capital Market Authority Act, Cap. (Hendry and Kiel, 2004).
485A defines an independent director as a Consistent with agency theory, boards with
director who has not been employed by the a significant number of independent
company in the last five years, who is not directors can limit the exercise of
related to a senior member of management, managerial discretion by exploiting their
who has no contract with the company, and monitoring abilities. Thus, independent
who is not a member of the immediate directors are normally considered strong,
family of senior managers. Thus, a director because of the minimal influence exerted
is deemed independent if he/she is upon them by executives (Maug, 1997).
independent of management and free from Because boards dominated by independent
any business or other relationships that directors are more likely to act in the best
could interfere with the exercise of interests of shareholders (Hermalin and
independent judgment. Weisbach, 1988; Byrd andHickman, 1992), it
is expected that such boards might pursue
The question of the effectiveness of shareholders goals at the expense of
independent directors in protecting the management interest, and thus use higher

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financial performance. We therefore democratic (Eagly and Johnson, 1990), and

hypothesize that communal than men (Rudman and Glick,
2001), then having more women on a board
Hypothesis 2: Higher representation of
could encourage more open conversations
independent directors is positively related
among members of the board. A broader
to financial performance
perspective may enable the board to better
Female directors
assess the needs of diverse stakeholders.
In addition to director resource diversity, The result may enhance the boards ability
gender composition that is the number of to effectively influence firm performance.
women on the board is expected to have an
Women directors are generally younger
impact on social financial performance.
than their male counterparts in terms of age
According to Hillman et al., 2002 on boards,
by approximately four to five years
women are more than twice as likely as men
(Simpson et. al.,2010) implying that women
to hold a doctoral degree. Compared to
not only influence board diversity in terms
male directors, female directors gain board
of gender but also in terms of age, therefore
experience with smaller firms and are less
contributing to diversity view of the board.
likely to have prior CEO or COO experience
In their study Adams and Ferreira (2009)
(Singh et al., 2008). Female directors are
observed that overall, gender-diverse
more likely than male directors to have
boards have increased levels of boardroom
expert backgrounds outside of business and
involvement and corporate oversight and
to bring different perspectives to the board
allocate more effort on monitoring, and also
(Hillman et al., 2002).
boards with a greater female presence have
Therefore, having more female directors higher levels of meeting attendance.
may sensitize boards and provide The primary way in which boards operate
perspectives that can be helpful in and conduct business is through meetings
improving firm performance. Increasing and thus, attendance is a crucial factor of a
board gender diversity (which, for all successful board (Adams and Ferreira,
practical purposes, means increasing the 2009). These authors note that women were
number of women on boards) can enhance less likely to have attendance problems and
decision making, as a wider variety of that having females on boards results in
perspectives and issues are considered and better attendance by male directors. Clearly,
a broader range of outcomes is assessed the female influence in this area is quite
(Daily and Dalton, 2003). The presence of important; increasing attendance should
more female directors may stimulate more result to better boardroom discussion and
participative communication among board higher levels of effectiveness. Women bring
members, if one assumes that gender specific advantages to board decision-
differences in leadership styles, as making when it comes to board strategic
evidenced in some studies, also exist at tasks (Nielsen and Huse, 2010) that gender
board director levels. If female directors are diverse boards have less conflict and are
more participative (Eagly et al., 2003),

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associated with more strategic control and Gender diversity can also affect the boards
board development activities. critical function of monitoring management.
Women provide, unique role on boards Having more women on the board
which is often reflected in their participative enhances the boards expertise by
management style and in higher sensitivity increasing the range of professional
compared to their male colleagues experience and augmenting the number of
(Bradshaw & Wicks, 2000). This ability, board members with advanced degrees
combined with womens attention to and (Hillman et al., 2002). These added qualities
consideration of the needs of others, may brought in by female board members enable
lead to womens active involvement in the board to more effectively monitor
issues of strategic nature that concern the management (Hillman and Dalziel, 2003).
firm and its stakeholders. Female directors We therefore propose that
are more likely than male directors to have
Hypothesis 3 Higher percentage of women
expert backgrounds outside of business and
director improves financial performance
bring different perspectives to the board
(Hillman et. al., 2002). Therefore having
more female directors may sensitize boards Financial Expertise
to environmental initiatives and provides A director is considered a financial expert if
perspectives that can be helpful in he/she posses the knowledge and
addressing issues of environment. experience in finance related areas
Increasing board gender diversity (which, (Iskandar et al., 2013; Guner et al., 2008). The
for all practical purposes, means increasing recent wave of financial scandals in the
the number of women on boards) can world has caused concern on the need for
enhance decision making, as a wider variety financial/accounting experts to be on board
of perspectives and issues are considered to ensure greater accountability on wide
and a broader range of outcomes is assessed range of issues (Guner et al., 2008). Financial
(Daily and Dalton, 2003). literacy of board of directors has been
The presence of more female may stimulate identified as one of the most significant
more participative communication among factors that increase the credibility of
board members. The reasons why women company financial position from the
should be included in the board is the perspectives of the customers, banks, and
embody a large pool of human capital that government bodies (Hasyudeen, 2003).
is available in an organization and also by Appropriate financial experience and
the virtue of gender that they are usually expertise of board members is negatively
minority of the board and therefore more of associated with financial distress (Kroll et
an outsider and less beholden to al., 2008; McDonald et al., 2008).
management and hence serve as better Guner et al., (2008) stressed that it is
monitors of managers (Simpson et. al., important for board members to have an
2010). understanding of accounting principles and
financial statements which will lead to
better board oversight and this will serve to

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the best interest of shareholders. Finance

experts significantly affect the finance and
investment policies of firms on whose board Board
they serve (Guner et al., 2008). According Independence
ROA
Kor and Sundaramuthy (2009) directors
Women
who have reasonable financial backgrounds Directors ROE
are more effective in providing internal
control system mechanisms to control firm
Financial
performance and hence financial distress. Expertise
Johl et al., (2015) also found a positive and
significant relationship between accounting
Leverage
expertise and financial performance of Profitability
Malaysian firms. The Cadbury Committee Firm Size
(1992) emphasized on the importance of
financial literacy with the argument that it
can enhance the effectiveness of the board. Methods and Data
Empirically, financially literate board The data used in this study was derived
members are found to be more efficient and from publicly listed firms in Kenya during
effective in carrying out their role the period 2004-2013. The total number of
(Pomeranz, 1997; Libby and Luft, 1993). firms listed on the Nairobi Securities
Therefore, the existence of qualified board exchange (NSE), as at the end of 2013, was
members enhances the integrity of the 57: these firms fall under different sectors of
board in controlling and monitoring firm the economy, such as agricultural,
management. This is supported by resource commercial and services industry,
dependency theory that a board equipped telecommunications and technology,
with adequate skills and expertise it automobile and accessories, investment,
enhances its monitoring and controlling manufacturing and allied, and construction.
roles. Qualified board members are wiser We considered only firms that traded
and able to provide leadership for the throughout the period under study: thus,
company. Their existence in the company firms that were first listed after 2004 and
instills more confidence among the capital those that were suspended during the
providers (Daily, 1995). Thus we period were excluded. The total number of
hypothesize that firms used in the study was 39, yielding a
Hypothesis 4: Financial expertise of total of 390 firm year observations.
directors is positively related with financial
performance We collected data from a number of
secondary sources. The data on board
composition was drawn from financial
reports, under the Directors/Corporate
Governance Report sections. For companies
whose reports did not provide adequate
Board Size
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director information, the same information varied capital structures (Jensen, 1989) thus
was collected from company websites. All affecting financial soundness of a firm.
the data on control variables and the According to Nwachukwu and Mohammed
dependent variable were collected from (2012) firms in the manufacturing industry
financial reports, as well as from the NSE have assets with a collateral value that
yearend reports, monthly reviews, and the improves their capacity to borrow which
NSE handbook have a bearing on financial performance.
Therefore, consistent with the approach
used by Barroso et al., (2011) and Plambeck
Measurement of Variables
and Weber (2010), this study assigned 1
Firm performance will be measured using to firms in the manufacturing sector and 0
ROA and ROE as measured by (Sanda et al., to the rest.
2011; Taghizadeh and Saremi, 2013). In line with previous studies, profitability
Director independence: Director was controlled in the study because of
Independence will be measured as the strong indications of its effect on financial
percentage of membership held by the performance. Thus, consistently with
outside independent directors, which has literature, profitability in this study was
been considered in prior studies (Zahra and calculated as earnings before depreciation,
Stanton, 1988). interest, and tax (EBDIT), divided by total
assets (Sirtaine, et al., 2005) and Maere et al.,
Gender diversity is the number of women 2014).
in the board, Adams and Ferreira, 2004; Financial expertise of directors is the
Bilimoria and Piderit, 1994; Daily et al., number of directors who posses knowledge
1999; Farrell and Hersch, 2001; Kesner and experience in finance related areas
1988). (Iskandar et al., 2013; Guner et al., 2008).
Thus following studies by Iskandar et al.,
Board size is defined as the number of
(2013) and Guner et al., (2008) directors
directors on the board (Kaymak and Bektas,
were classified as financial experts if they
2008; Perrini et al., 2008). Thus, consistently
possess the knowledge and experience in
with other studies, we measured board size
finance related areas.
by counting the number of individuals
serving on the board of directors (Tarus and
Model Specification
Aime, 2014; Singh and Davidson III, 2003).
ROAPitFSitit .Model 1
We incorporate control variables into the
analysis, particularly variables known to ROAPitFSitIit BSit+
affect capital structure. Firm size was WitFEitit...Model 2
measured as a natural log of total assets
(Anderson et al., 2004; Perrini et al., 2008). ROEPitFSitIit..Model 3
Industry was measured as a dummy
variable and controlled in the study,
because firms in different industries adopt

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ROEPitFSitSi squares, fixed effects, and random effects

(Kraatz and Zajac, 2001), this study used
WitFEit +it...Model 4
random effects regression. Independence of
ROA/ROE= Firm financial performance of error terms was tested using a Durbin-
firm i (i=1, 2.44) in time t(t=1, 210), Watson statistic, and the results ranged
BI=Board Independence, BS= Board Size, between 1.619 and 1.937, which is within
W= Women Directors, FE= Financial the threshold of 1.5-2.5 (Hair et al., 2006).
Experts, P= Profitability, FS=Firm size, I= Jarque-Bera (JB) test for normality was used
Industry it= the random error terms to for normality of error terms. According to
Bryset al. (2004), the JB tests the hypothesis
Results
that the distribution of error terms is not
Table: 1 Descriptive Statistics significantly different from normal (H0: E
()~N(=0,Var.=2) . The results of the tests
Mean Std.in
are presented Deviation N show
table 4.2. The results
ROA 1.106 that the significance
0.361 levels for the390Jarque-
ROE 1.284 Bera statistics
0.153were greater than the 390critical
Profitability 0.326 p-value of 0.05 implying that the
0.614 390errors
Firm Size 0.409 were not 0.285different from normally390
Board Size 8.765 distributed (Tanweeer,
2.314 2011). 390
Board Independence 3.887 Research 0.005
Findings 390
Director Financial expertise 0.930 0.091 390
Hypothesis 1 tested whether there is a
Women Director 0.146 0.146 390
positive relationship between smaller board
Source: Research Data 2015
and financial performance. The results
Empirical Results showed negative but significant
Several tests were performed before the relationship between smaller board and
regression analysis. Firstly, we tested for the financial performance (=-0.125; p< 0.05).
presence of multicollinearity using Variance Therefore, the hypothesis is not supported.
Inflation Factors (VIF) and Tolerance. Hypothesis 2 predicted a positive
Multicolliniarity exists when two or more relationship between board independence
predictor variables are strongly correlated and financial performance. Results showed
(Field, 2005), and Hair et al., (2006) board independence a positive and
suggested a threshold of VIF values of 10. significant relationship with financial
Each of the variables used in this study, performance (= 4.042; p<0.05). The
including the control variables, range from hypothesis was accepted. Hypothesis 3 tests
1.138-1.951, suggesting the absence of whether gender diversity has a positive and
multicollinearity. We also tested for the significant effect on firm performance. The
presence of heretoscedasticity, which is a results is positive and significant =3.012
common problem in panel research. p<0.05) thus the hypothesis was supported.
Although there are several ways of dealing Implying that presence of women directors
with the problem, such as generalized least does improve financial performance.

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Finally, fourth hypothesis postulated a (Corbetta and Salvato, 2004; Maere et al.,
positive relationship between directors 2014). As per agency theory the main
financial expertise and financial argument in favor of a larger board of
performance of the firm. The results was directors is that the increase in the number
positive and insignificant (1= -0.213; of members raises their disciplinary control
p<0.05) thus, the hypothesis was rejected. over the CEO (Brdart, 2014). The study
also found that gender diversity has a
Discussions and Conclusions
positive and significant effect on firm
In this paper, we have examined the performance. Although the results of
relationship between board composition previous studies have been equivocal, both
and capital structure using data from firms proxies of gender diversity indicate a
listed on the Nairobi Securities Exchange. positive and significant relationship.
Specifically, the study investigated the Drawing from agency theory, firm
effect of board composition variables; performance is enhanced when the
director board size, independence, gender, objectives of both the executives and
and financial experts on financial shareholders are synchronized. Indeed,
performance. studies have found that women are more
Our analysis suggests the following likely to hold CEOs accountable for poor
findings: Firstly, higher representation of performance and are better monitors
independent directors has a positive (Adams and Ferreira, 2009). In this sense,
association with financial performance; the more women are represented on the
secondly, small board size is negatively board, the more CEOs and top management
related to financial performance. Our first will be held to account for poor
finding supports the view that independent performance, and results expected to
directors are effective monitors this is improve. Our finding is supported by
consistent with agency theory (Jensen and studies conducted by Tarus and Chepkuto
Meckling, 1976). Thus, the results of this (2014) who found a positive relationship
sample indicate that independent directors between gender and firm performance in
are associated with positive financial Kenya. The results for financial expertise
performance. was also not significant, possibly the reason
The results relating to board size indicate a as to why directors with financial related
negative significant relationship between skills and experience may not be an
small board size and financial performance. effective control mechanism Kenya, could
Our results indicate that firms with smaller be due to the structure of ownership
boards tend to have lower financial associated with firms.
performance. This findings is in supports By and large, our study seems to suggest
resource dependence theory which is in that the board plays an important role in the
favour of a larger as it is more likely to have decision making of the firm. Although,
a wider range of skills, knowledge and governance codes in Kenya are a
expertise which in turn may contribute to duplication of western codes some of the
both its monitoring and servicing roles vital variables where insignificant such as

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women directors. The effectiveness of may provide additional insights and

directors depends mainly on their skills, enhance our understanding of the issues
and it is therefore important to recommend explored here.
the need to study the skills of board
members to determine their effectiveness to Reference
carry out their mandate. Aziz, M. Adnan and Dar, Humayon A.
(2006). Predicting Firm financial
The study is opportune, both in terms of performance: where we stand? Corporate
practice and theory. First of all, it has Governance, Vol. 6 (1), pp. 18-33.
enhanced understanding of how boards of Guner, B. U. Malmendier, and G. Tate
directors influence management decision- (2008), Financial expertise of directors,
Journal of Financial Economics, vol. 88, pp.
making concerning firm performance.
323-354
Secondly, the significant relationship Beasley, M. S. (1996). An empirical
between board independence and firm analysis of the relation between the board of
leverage, it is an indicator to the fact that director composition and financial
independent boards have strong monitoring statement fraud. Accounting Review, 71:
abilities, and therefore the composition of 443465.
Boards of Directors and Firm Performance:
boards should take cognizance of members
Is There an Expectations Gap? Corporate
who are independent of management. The
Governance: An International Review, 14 (6),
study has made some contributions to the 577-593.
literature. It is clear that although it is a Core, J. E., Holthausen, R. W., & Larcker,
constitutional requirement for boards to be D. F. (1999).Corporate governance, chief
comprised of at least one-third women, alot executive officer compensation, and firm
still needs to be done in Kenya to achieve performance. Journal of Financial Economics,
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