Corporate Governance, Inflation and Profitability of Manufacturing and Allied Firms Listed at the Nairobi Securities Exchange in Kenya
DOI:
https://doi.org/10.53819/81018102t4315Abstract
Despite being recognized as pillars of economic upsurge and development, the manufacturing and allied firms listed at the Nairobi Securities Exchange in Kenya have consistently faced challenges as far as their profitability is concerned. For instance, in the period 2016-2023, their average value of return on assets stood at -0.0134, meaning significant amount of loses were reported by these firms. Against this background, the study sought to establish the effect of corporate governance and inflation rate on profitability of manufacturing and allied firms listed at the Nairobi Security Exchange in Kenya. More specifically, this study sought to establish the effect of board size, board independence and board diversity on profitability of manufacturing and allied firms listed at Nairobi Securities Exchange. The agency, stewardship, resource dependence and Keynesian theories provided anchorage to the proposed study. The study adopted descriptive survey design targeting 13 manufacturing and allied firms that were listed on the Nairobi Securities Exchange and census was adopted. Information from auxiliary sources was gathered on a period 2016-2023 and SPSS guided processing. Correlation results were that while board size had a moderate but positive relationship with profitability, board independence also had a moderate but negative relationship with profitability. On the other hand, board diversity and inflation rate all had strong and positive relationship with profitability of the listed manufacturing firms in Kenya. The study concludes that corporate governance and inflation have significant effect on profitability. The study recommends that Capital Market Authority should establish an optimal board size should be used as a benchmark by these listed firms. To improve the profitability of the listed manufacturing firms in Kenya, there is need for more independent and executive directors to be included on boards.
Keywords: Corporate Governance, Board Size, Board Independence, Board Diversity, Inflation, Profitability
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