Macro-Economic, Corporate Governance Factors and the Financial Performance of Listed Firms on Nairobi Securities Exchange

Abstract

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.