Determinants of Effectiveness of Corporate Governance in State Corporations in Kenya

Abstract

This study sought to establish the determinants of effectiveness of Corporate Governance at state corporations in Kenya. The Specific Objectives were; to determine the effectiveness of Board Characteristics on Corporate Governance at state corporations in Kenya, to explore the effectiveness of Executive and Director Compensation policies on Corporate Governance at state corporations in Kenya, to identify the effectiveness of the Board Audit Committee on Corporate Governance at state corporations in Kenya and to assess the effectiveness of the Legal and Regulatory Framework on Corporate Governance at State Corporations in Kenya. Based on the literature, four research hypotheses were formulated to investigate the relationships between four independent variables namely: board characteristics; executive & director compensation policies, audit committee characteristics, legal & regulatory framework and the dependent variable. This study was based on The Agency and Stewardship theories. Quantitative research design was adopted for the study. The target population of the study was the managers in all the 187 state-owned corporations in Kenya. The sampled companies for the study were 57which were identified through systematic random sampling technique. The research instrument used was a 5-point-likert scale questionnaire ranging from 1-strongly disagrees to 5-strongly agree. Primary data was collected by use of questionnaires which were administered through drop and pick method. Reliability and convergent validity of the questionnaire was tested using the Cronbach’s alpha and principal component analysis respectively. Descriptive statistics of means and standard deviation of Likert scores were calculated. Correlation analysis technique was undertaken to determine whether there was a significant relationship between study variables. However regression analysis was performed so as to test the hypothesis and subsequently model the relationship between the variables. The study found out that board characteristic, executive compensation, audit committee characteristics, directors’ compensation policies and legal and regulatory framework were positively correlated with corporate governance in state corporations in Kenya. The regression analysis led the study to conclude that Board Characteristics, executive compensation, audit committee characteristics, directors’ compensation policies and legal and regulatory framework were critical in determining effectiveness of Corporate Governance in State Corporations in Kenya. Consequently the study recommended that stakeholders of State Corporations should enhance Board Characteristics, compensation policies, audit committee characteristics and Legal & regulatory framework to sustain effective Corporate Governance in these institutions. The four independent variables; board characteristics’, executive compensation, audit committee characteristics and legal & regulatory framework, were significant determinants of corporate governance. These factors collectively accounts for large variations (79.9%) in corporate governance in these state owned corporations. Recommendations; Top Management of State Corporations need to adopt and entrench policies that support positive practices of governance and to have legal framework that ensures efficiency and effectiveness in state corporations in Kenya so as to increase shareholder value. Finally it was recommended that further research be carried out that incorporates managers of private and not only state corporations.