Macroeconomic Determinants of Non-Performing Loans in Kenya: 1998-2015

The study examined the Macroeconomic determinants of non-performing loans in Kenya. Time series data for periods 1998 to 2015 was analyzed using a linear regression model. The dependent variable was the ratio of non-performing loans to total loans. The independent variables were GDP growth rate, inflation rate, interest rate, exchange rate, remittances, unemployment rate and public debt. The empirical results indicated that inflation rate, interest rate, GDP growth rate, public debt, and exchange rate were not statistically significant while unemployment rate and remittances were statistically significant at 0.05 level of confidence. The study concludes that the significant macroeconomic determinants of non-performing loans in Kenya for periods 1998 to 2015 were remittances and the unemployment rate. Keywords: Non-Performing Loans, Macroeconomic determinants, Inflation rate, Interest rate, GDP growth rate, Public Debt, Exchange rate, Unemployment Rate, Remittance

Corporate Governance and Financial Performance: Theoretical and Philosophical Predicaments in Research

Theories and philosophical approaches in research are crucial to the understanding of the overall perspective from which the study is designed and carried out. However, inconsistencies in theory and duality in philosophical paradigms leads to predicaments as to which approach is suitable in a certain area of inquiry. This paper examines some of the theoretical and philosophical predicaments faced by researchers in corporate governance. This is achieved by identifying and discussing controversies in theories and philosophical approaches applicable in corporate governance studies. A review of theoretical literature shows lack of a unitary perspective to explain the relationship between corporate governance and firm financial performance. Consequently, researchers may have to adopt a multi-theory approach by taking views of property rights agency, resource based and stewardship and stakeholder’s theories to understand different perspectives of corporate governance. The multiplicity of theories and inconsistencies of expected relationships between variables also creates dilemma to researchers in predicting the relationships between corporate governance variables and firm performance. The duality of philosophical paradigms and divergent assumptions of ways of knowing also creates dilemma as to which is the best approach to apply in corporate governance research. This study found that most corporate governance studies opts for objectivism position in ontology which leads to positivism view in epistemology, associated with value free axiology, deductive approach and application of quantitative methods. This is in contrasts to the choice of subjectivism position in ontology which leads to the selection of interpretivism stance in epistemology and consequently value laden position in axiology. Subjective approach also leads to inductive approach and application of qualitative methods of data collection and analysis. It is therefore concluded that identification of ontology at the start of the research process is crucial in determining the choice of the research design. Keywords: Corporate Governance, Theory, Philosophy

Corporate Governance and Financial Performance: a literature Review of Measurements and Econometric Methods of Data Analysis in Research

One of the major challenges to policy makers is the identification of standard framework to examine the effects of corporate governance on firm financial performance. This study examines the key corporate governance and financial performance variables and the methods of data analysis used in academic research. The study observes that most studies use ownership structure and corporate boards as the key explanatory factors to firm performance. Ownership structure is defined by the percentage of shareholders who include: the government, foreign and institutional shareholders, large individuals and dispersed owners. Financial performance has been measured using three different types of indicators. Some studies use accounting-based ratios such as Return on Assets (ROA) and Return on Equity (ROE) while others use the Tobin’s Q ratio. Some studies also use efficiency indicators computed using the Data Envelopment Analysis (DEA) and Stochaistic Frontier Approach (SFA). It is also apparent that most studies in corporate governance research use panel data and the shareholding, corporate boards and financial information is extracted from financial reports obtained from the stock exchanges. Most of the studies use a combination of descriptive statistics, correlation and regression analysis to examine the relationships between ownership structure, corporate boards and firm performance. Due to problems associated with panel data, a unit root test is used to examine stationarity of data while a Hausman test determines whether to use a Fixed Effects (FE) or Random effects regression model. A regression model with a robust standard error option is often used to control for heteroskedasticity and contemporaneous correlation which may lead to spurious results

The Influence of Change in Corporate Governance on Financial Performance of Privatized Companies in Kenya

This study examined the influence of change in corporate governance structure on financial performance of privatized companies in Kenya for the period 2007-2013. Unlike previous studies, four performance indicators were used and include: Return on Assets (ROA), Tobin’s Q, cost efficiency and technical efficiency. The cost and technical efficiency values were computed using the Stochastic Frontier Analysis (SFA). Data was extracted from financial reports of privatized firms, obtained from the Capital Markets Authority (CMA) and the Nairobi Stock Exchange (NSE). A unit root test was conducted to examine stationality of data while a Hausman test was used to determine whether to use the Fixed Effects (FE) or the Random Effects (RE) regression model. A regression model with a robust standard error option was used to control for heteroscedasticity and contemporaneous correlation which could cause spurious results. The study found that board composition has a positive influence on ROA, Tobin’s Q and cost efficiency of privatized companies. The board size has a negative influence on the Tobin’s Q while gender has a negative influence on ROA. In view of these findings, this study recommends that corporate boards of privatized companies should be restructured further to enhance financial performance. Consequently, the board size should be reduced to between seven and nine to enhance coordination and faster decision making. The percentage of women directors should be increased to meet the constitutional threshold of at least 30%. However, the appointment of women directors should be based on skills and expertise required by a firm to improve financial performance. The board composition should also be enhanced to enable privatized companies to attract managerial and technical expertise from non-executive directors which is crucial to improving the financial performance. Keywords: Privatization; Corporate Governance; SOEs; Financial Performance; Kenya

The Effects of Ownership and Corporate Governance Reforms on Efficiency of Privatized Companies in Kenya

This study investigated the effects of ownership and corporate governance reforms on efficiency of privatized companies in Kenya for the period 2007-2013. Data was extracted from financial reports. A unit root test examined stationarity of data. A fixed effects regression model with a robust standard error option was used to control for firm specific effects which could bias results. The results indicate government ownership has a negative effect on cost and technical efficiency. Local institutional investors influence technical efficiency positively. Large individual shareholders have a positive influence on cost efficiency while dispersed ownership influence cost efficiency negatively. Both non-executive and women directors influence cost efficiency positively. This study recommends further reduction of state and dispersed ownership to pass more ownership and control to institutional investors. Diversity in corporate boards should be enhanced to enable firms to attract managerial and technical expertise from the non -executive and women directors. Keywords: Privatization; SOEs; Efficiency JEL Classifications: G32, H2