MODERATING ROLE OF FIRM SIZE ON CORPORATE GOVERNANCE AND FINANCIAL PERFORMANCE OF MICROFINANCE INSTITUTIONS IN KENYA

  • Benadetta Munyiva Kivaya Moi University
  • Ambrose Kemboi Moi University
  • Robert Odunga Moi University
Keywords: Corporate governance, financial performance, Microfinance Institutions in Nairobi City County

Abstract

Purpose of the study: The declining performance of microfinance institutions in terms of profitability measured using return on assets is a concern in Kenya and majority of these institutions are beginning to embrace corporate governance to enhance acceptable financial management practices. Microfinance institutions continue to face a myriad of challenges in their quest to enhance financial accessibility in the country. Some of the microfinance institutions have left the market as a result of serial poor performances. The study aimed to establish the moderating role of firm size on corporate governance and financial performance of microfinance institutions in Kenya. The study objectives were to establish the influence of board size, board duality, board composition and board independence on financial performance of microfinance institutions in Nairobi City County and were guided by Agency Theory, Stewardship Theory and Resource Dependence Theory. The study also investigated the moderating effect of firm size on the relationship between corporate governance and financial performance of Microfinance Institutions in Nairobi County.

Method/methodology: The study adopted causal research design. The target population of the study comprised all the 13 registered Microfinance Institutions in Nairobi City County. Secondary data were collected from micro finance financial reports. The study conducted both descriptive statistics analysis and panel data analysis model.

Results: Pearson correlation was used to establish the association between the independent variables and the dependent variable and it was found that board size, board duality have a negative and significant association with financial performance of microfinance institutions. Board composition has a positive and significant association with financial performance of microfinance institutions. However, board independence had positive but insignificant association with financial performance of microfinance institutions. Regression analysis indicated that board size (β = -0.015933, p=0.043) and board duality (β= -0.09534, p=0.007) have a negative significant relationship with financial performance of microfinance institutions in Nairobi City County. Board composition and financial performance of microfinance institutions have a positive and significant relationship (β=0.142369, p=0.009). Board independence and financial performance of microfinance institutions have a positive though insignificant relationship (β = 0.016079, p=0.676). Firm size moderates corporate governance and financial performance of microfinance institutions in Nairobi County where the explanatory power of R2 improved from 46.72% before moderation to 52.68% after moderation. Based on research finding it can be concluded that board size, board duality, board composition and board independence influences financial performance of Microfinance Institutions in Nairobi County.

Conclusions and recommendations: It was also concluded that firm size is a significant moderator on board duality, board composition and financial performance of microfinance institutions. The study recommends for moderately sizeable board of management that is neither too large nor too small. Microfinance institutions that have large boards may incur more cost in remunerating the board members. Likewise a very small board size may lead to the biased decisions or weak decisions. The study recommends the consideration of gender diversity when constituting the board. The study recommends for an independent board characterized by executive and non-executive directors.

Keywords: Corporate governance, financial performance, Microfinance Institutions in Nairobi City County

Author Biographies

Benadetta Munyiva Kivaya, Moi University

Post graduate Student, Moi University, Kenya

Ambrose Kemboi , Moi University

Department of Management Science,

Moi University, Kenya

Robert Odunga, Moi University

Department of Accounting and Finance,

School of Business and Economics,

Moi University, Kenya

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Published
2020-01-10
How to Cite
Kivaya, B. M., Kemboi , A., & Odunga, R. (2020). MODERATING ROLE OF FIRM SIZE ON CORPORATE GOVERNANCE AND FINANCIAL PERFORMANCE OF MICROFINANCE INSTITUTIONS IN KENYA. African Journal of Emerging Issues, 2(1), 1 - 23. Retrieved from https://ajoeijournals.org/sys/index.php/ajoei/article/view/76
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Articles