Corporate governance guidelines compliance and firm financial performance

Erick Rading Outa (Strathmore Business School, Strathmore University, Nairobi, Kenya)
Nelson M. Waweru (School of Administrative Studies, York University, Toronto, Canada)

Managerial Auditing Journal

ISSN: 0268-6902

Publication date: 5 September 2016

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Originality/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.

Keywords

Citation

Outa, E. and Waweru, N. (2016), "Corporate governance guidelines compliance and firm financial performance", Managerial Auditing Journal, Vol. 31 No. 8/9, pp. 891-914. https://doi.org/10.1108/MAJ-12-2015-1291

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Publisher

:

Emerald Group Publishing Limited

Copyright © 2016, Emerald Group Publishing Limited

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