Effect of Corporate Governance on Financial Performance

14210 Words Nov 2nd, 2009 57 Pages
TABLE OF CONTENTS

Cover page…………………………………………………………………………. i

Declaration ………………………………………………………………………… ii

Dedication…………………………………………………………………………...iii

Acknowledgement…………………………………………………………………. iv

Table of Contents …………………………………………………………………. v

Abstract……………………………………………………………………………. vii

1.0 CHAPTER ONE: INTRODUCTION…………………………………….... 1

1.1 Background of the study…………………………………………………… ….1

1.2 Statement of the problem…………………………………………………….... 7

1.3 Research questions ……………………………………………………....…..…8

1.4 Objectives of the study…………………………………………………...……..8

1.5 Importance of the study………………………………………..………………. 9

1.6 Scope of the study…………………………………………...………………….10

1.7 Definition of terms…………………………...…………………………………10

1.8 Chapter
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The analysed data was presented in tables, pie charts and graphs.

The study found that the costs related to directors salaries and allowances did not increase the cost of operation. Hence the cost of good corporate governance has no implication on financial performance. And lastly, structures of good corporate governance do not increase operating costs.

From the study, it was recommended that motor vehicle companies and other companies in trading at the Nairobi Stock Exchange should institute good corporate governance as there was no negative cost implication on the organizations financial performance.

CHAPTER ONE: INTRODUCTION

1.1 Background of the Study

The credo of the giant USA corporation Johnson & Johnson has four simple yet profound management philosophy of essential values to be upheld by everyone in the company and one of them states that the company’s final responsibility is to their shareholders and is to give them a fair return on their investment, Lutz (2004).

Chen, et al (2004) showed that the effect of good corporate governance on expected returns is more profound for firms with higher free cash flows but poor investment opportunities and for firms with lower insider ownership, consistent with agency costs of free cash flows as proposed by
Jensen and Meckling (1976) agency theory.

Laing & Weir (1999) analyzed the extent of Cadbury’s compliance with its 1992 report and its impact on corporate performance in UK between