This paper aims to examine the impact of compliance with corporate governance (CG) guidelines during the period 2002-2014 on firm financial performance and firm value of Kenyan-listed companies.
Using panel data of 520-firm year’s observations between 2005 and 2014, the authors test the hypothesis that compliance with CG guidelines issued in 2002 by Capital Markets Authority (CMA) improved firm financial performance and firm value.
Compliance with CG Index which is an aggregate of all the CG guidelines is positively and significantly related to firm performance and firm value. Board evaluation is also positively and significantly related to firm performance. The findings suggest that CG guidelines are associated with firm financial performance and firm value.
The authors provide evidence on the relationship between CG practices and firm financial performance and firm value in Kenya. Second, the authors provide evidence on board evaluation which has not been tested before in a “comply or explain” environment. Finally, they evaluate how CMA 2002 CG guidelines steered firm financial performance and firm value over its life cycle from 2002 to 2014. These results are important to CMA and other CG regulators and boards in their efforts to improve CG practices in the region.
The authors thank the participants of the 5th Africa Accounting and Finance Association Conference at the University of Mauritius 2015. The authors specially thank Dr Uche Chinyere of Bristol University and Prof Teevan Soobaroyen of Southampton Business School for their critical comments that shaped the paper.
Outa, E. and Waweru, N. (2016), "Corporate governance guidelines compliance and firm financial performance: Kenya listed companies", Managerial Auditing Journal, Vol. 31 No. 8/9, pp. 891-914. https://doi.org/10.1108/MAJ-12-2015-1291Download as .RIS
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