Macro-Economic, Corporate Governance Factors and the Financial Performance of Listed Firms on Nairobi Securities Exchange
The main goal of many listed firms at NSE is to grow and sustain growth in financial performance. Internal factors and external factors are viewed as critical drivers for the financial performance of listed firms on NSE. This paper focuses on investigating the influence of macro-economics and corporate governance factors on the financial performance of listed firms at NSE. The review of earlier studies in this field has shown lack of consensus on the effect of corporate governance and macro-economic factors on the financial performance of listed firms at NSE, thus the need for this study. The population of this study comprised of all the sixty-three (63) listed firms at NSE in Kenya and licensed by the Central Bank of Kenya (CBK) as at December 2017. The study used Panel data covering a period of seven (7) years from 2011 to 2017. The data was collected from, KNBS, CBK published financial annual supervisory reports, and published annual financial reports for the fifty-five (55) firms which were consistently listed at NSE and whose data was available. The study used correlation and multiple linear regression to analyze the data. The study established that the macro-economic and corporate governance factors accounted for 99.5% of the financial performance of listed firms in Kenya (R2 = 0.995). Additionally, the study established that the macro-economic factors had a negative significant influence on the financial performance of listed firms at NSE, which is specified by a strong statistically significant negative relationship (r = -0.495, p < 0.05). Comparatively, the findings of the study revealed that corporate governance factors had a significant positive influence on the financial performance of listed firms at NSE (specified by r = 0.551, p < 0.05). In conclusion, macro-economic and corporate governance factors have a statistically significant influence on the financial performance of listed firms at NSE. The study recommends further research on other macro-economic and corporate governance factors not included in the study to determine their influence on the financial performance of listed firms at NSE. Some of the macro-economic factors of interest for future research include but not limited to the level of unemployment in the economy, the level of stock market, and money supply. On the other hand, corporate governance factors include the board composition in terms of age, ethnicity, race, profession, experience, frequency of holding board meetings, and number of board committee.
2. Barasa, J. W. (2014). Macro-economic determinants of stock market performance in Kenya: case of Nairobi Securities Exchange. Doctoral dissertation, University of Nairobi.
3. Chawla, R. (2019). Determinants of Financial Performance of Selected Listed Manufacturing Firms in India.
4. Coles, J. L., Daniel, N. D., & Naveen, L. (2008). Boards: Does one size fit all? Journal of financial economics, 87(2), 329-356.
5. Constitution of Kenya (2010). Kenya Law. http://www.kenyalaw.org/lex/actview. xql?actid= Const 2010.
6. Council, A. C. G. (2007). Corporate governance principles and recommendations.
7. Crowley, J. (2007). Interest Rate Spreads in English-Speaking Africa. IMF Working Paper. April 2007, 123-45.
8. Deloitte (2016). Kenya Economic Outlook 2016. The Story behind the numbers. https://www2.deloitte.com/content/dam/Deloitte/ke/Documents/tax/Economic%20Outlook%202016%20KE.pdf.
9. EIOPA (2015). Financial stability report.”, European Insurance and Occupational Pensions Authority.
10. Eisenberg, T., Sundgren, S., & Wells, M. T. (1998). Larger board size and decreasing firm value in small firms. Journal of financial economics, 48(1), 35-54.
11. Guest, P. M. (2009). The impact of board size on firm performance: evidence from the UK. The European Journal of Finance, 15(4), 385-404.
12. Gul, S., Irshad, F., & Zaman, K. (2011). Factors affecting bank profitability in Pakistan. Romanian Economic Journal, 14(39).
13. Hosseini, S. M., Ahmad, Z., & Lai, Y. W. (2011). The role of macroeconomic variables on stock market index in China and India. International journal of Economics and Finance, 3(6), 233-243.
14. Illo, A. D. (2012). The effect of macro-economic factors on financial performance of listed firms on NSE. Doctoral dissertation, University of Nairobi.
15. Issahaku, H., Ustarz, Y., & Domanban, P. B. (2013). Macro-economic factors and stock market returns in Ghana: Any causal link?. Asian economic and financial review, 3(8), 1044.
16. Jhingan, M. L. (2002). Macro-economic theory (10th Ed.). Vrinda Publications Ltd, New Delhi.
17. Kakanda, M. M., Salim, B., & Chandren, S. (2017). Do board characteristics and gender diversity disclosure have any effect on firm performance? Empirical evidence from deposit money banks in Nigeria. Business and Economic Horizons (BEH), 13(1232-2019-719), 506-521.
18. Kemuma, N. (2015). The effect of foreign exchange rate volatility on profitability of insurance industry in Kenya. School of business, University of Nairobi.
19. Kibet, A. T. (2016). Relationship between macro-economic factors and financial performance of agribusiness firms listed at the Nairobi Securities Exchange in Kenya. Department of Finance & Accounting, School of Business, University of Nairobi.
20. Kimeu, W. (2017). The effect of corporate governance on financial performance of commercial banks in Kenya. Unpublished MBA project, University of Nairobi.
21. Kothari, C. R. (2008). Research methodology: methods & techniques (1st ed.). New Delhi: New Age International Publishers.
22. Kumari, K., & Yadav, S. (2018). Linear regression analysis study. Journal of the practice of Cardiovascular Sciences, 4(1), 33.
23. Lekone, B., & Mukuna, J. (2014). Statutory and corporate governance concerns on investments by. European Scientific Journal, 10(19).
24. Lumen (2022). Introduction to Monetary Policy. https://courses.lumenlearning.com /boundless-economics/chapter/introduction-to-monetary-policy/
25. Mak, Y. T., & Kusnadi, Y. (2005). Size really matters: Further evidence on the negative relationship between board size and firm value. Pacific-Basin finance journal, 13(3), 301-318.
26. Markarian, G., & Parbonetti, A. (2007). Firm complexity and board of director composition. Corporate governance: An international review, 15(6), 1224-1243.
27. Marshall Hargrave (2021). Return on Assets (ROA). [online] Investopedia. https://www.investopedia.com/terms/r/returnonassets.asp [Accessed 15 March 2021].
28. Masoumi, M., Azar, F. E. F., RezaPour, A., & Mehrara, M. (2019). Economic and non-economic determinants of Iranian pharmaceutical firms’ financial performance: an empirical study. BMC health services research, 19(1), 1-13.
29. Mbogo, M. M. (2015). The effect of currency depreciation on financial performance: a study of manufacturing and allied firms listed on the Nairobi Securities Exchange. Unpublished MBA project United States International University.
30. Mocha, T. M. (2014). The legal protection of minority shareholders: a comparative analysis of the regulatory frameworks of Kenya and the united kingdom (Doctoral dissertation, University of Nairobi).
31. Muchiri, H. G. (2012). The impact of macro-economic factors on the performance of the Nairobi Securities Exchange. Doctoral dissertation, University of Nairobi.
32. Murungi, D. U. (2014). Relationship between macro-economic factors and financial performance of insurance firms in Kenya. Doctoral dissertation, University of Nairobi.
33. Mutugi, P. M. (2012). The determinants of financial performance of life assurance firms in Kenya. Unpublished Thesis Submitted To University of Nairobi (2012).
34. Mwangi, M., & Murigu, J. W. (2015). The Determinants of financial performance in general insurance firms in Kenya. European Scientific Journal, ESJ, 11(1).
35. Ng’etich Joseph Collins, K. W. (2011). The effects of interest rate spread on the level of non-performing assets: A case of commercial banks in Kenya. International Journal of Business and Public Management (ISSN: 2223-6244) Vol, 1(1), 58-65.
36. Nthama (2010). A study on the effects of corporate governance on the value of the firm; an empirical study of firms listed in the Nairobi Securities Exchange. Unpublished MBA.
37. Okiro, K. O. (2015). The effect of corporate governance and capital structure on performance of firms listed at the East African Community securities exchange.
38. Okonkwo, O. N., Ogwuru, H. O., & Ajudua, E. I. (2014). Stock market performance and economic growth in Nigeria: An empirical appraisal. European Journal of Business and Management, 6(26), 33-42.
39. Olweny, T., & Omondi, K. (2011). The effect of macro-economic factors on stock return volatility in the Nairobi Stock Exchange, Kenya. Economics and Finance review, 1(10), 34-48.
40. Opanga. B. O. (2013). The relationship between corporate governance and financial performance: A study of insurance firms in Kenya. Unpublished MBA project, University of Nairobi, 2013.
41. Osoro, C., & Jagongo, A. (2013). Investors’ perspectives on the NASI and the NSE 20 share index as performance measurement indicators at the Nairobi securities exchange In Kenya. International Journal of Humanities and Social Science, 3(18), 153-162.
42. Osoro, C. & Ogeto, W. (2012). Macro-economic fluctuations effects on the financial performance of listed manufacturing firms in Kenya. The international journal of social sciences, 2014 Vol. 21, 1-15.
43. Prableen, B. (2021). How Central Banks Control the Supply of Money. https://www.investopedia.com/articles/investing/053115/how-central-banks-control-supply-money.asp. Updated May 18, 2021
44. Rao, D. T. (2016). The relationship of macro-economic factors and financial performance of the five firms listed in the energy and petroleum sector of the NSE. Doctoral dissertation, Strathmore University.
45. Saunders, A. (1999). Financial institutions management: Modern Perspective, 3rd Edition, Irwin McGraw Hill.
46. Singh, A. (1993). The plan, the market and evolutionary economic reform in China. United Nations Conference on Trade and Development (UNCTAD).
47. SRS (2016). Unemployment and Inflation: Implications for Policymaking. https://www.everycrsreport.com/reports/R44663.html.
48. Stock Trading Infocentre (2018). Role of Stock Exchanges. http://www.stock-trading-infocentre.com/role-of-stock-exchanges.htm SBI copyright 2009-2018.
49. Velnampy, T. (2013). Corporate governance and firm performance: a study of Sri Lankan manufacturing firms. Journal of Economics and Sustainable Development, 4(3), 228-235.
50. Wabita, F. M. (2013). Determinants of financial performance of insurance firms in Kenya. University of Nairobi unpublished master of science in finance project.
51. Wachudi, E. J., & Mboya, J. (2012). Effect of board gender diversity on the performance of commercial banks in Kenya. European Scientific Journal, 8(7).
52. Walt, N. T & Ingley C.B. (2003). Corporate Governance, Institutional Investors and Conflicts of Interest. Corporate Governance, An International Review,12(4), 534-551
53. Wanyama, D., & Olwenyi, T. (2013). Effects of corporate governance on financial performance of listed insurance firms in Kenya. Public policy and administration research, 3(4), 96-120.
54. Wetukha, P. A. (2013). The relationship between board composition and financial performance of listed firms at the Nairobi Securities Exchange. Unpublished MBA Project University of Nairobi, Nairobi, Kenya.
55. Yasser, Q. R., Entebang, H. A., & Mansor, S. A. (2011). Corporate governance and firm performance in Pakistan: The case of Karachi Stock Exchange (KSE)-30. Journal of economics and international finance, 3(8), 482-491.
56. Yermack, D. (1996). Higher market valuation of firms with a small board of directors. Journal of financial economics, 40(2), 185-211.
57. Zahra, S. A. & Pearce, J. A. (1989). Boards of directors and financial performance: A review and integrative model, Journal of Management, 15, 291–334.
58. Zarnowitz, V. (1992). Major macro-economic factors and leading indexes, p. 357 – 382. https://www.nber.org/chapters/c10383.pdf
Copyright (c) 2022 Ndukanio Antony Muturi, Fredrick Mukoma Kalui
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.