Corporate Governance and Operational Performance of Auto-Service Industry in Kenya: Evidence of Selected Auto-Service Firms in Nairobi County, Kenya

Morris M. Matilu, Dr. Samson Nyang’au, Dr. Antony Mwendwa

Abstract


Organizations pursue economic activities to fulfil the primary objectives of shareholders. Wealth maximization stands out among others as a primary objective of shareholders. Growth requires resources which organizations source from owners. Increasing capital needs associated with growth of enterprises leads to separation of ownership and control. The general objective of the study was to determine the relationship between corporate governance and operational performance of auto-service industry in Nairobi County. The study was guided by the following specific objectives: to evaluate the effect of board independence on operational performance of auto-service industry in Nairobi County and finally to evaluate the effect of organization ownership on operational performance of auto-service Sector in Kenya. This study employed mixed research design. The population of the study comprised of 16major auto-service firms in Kenya.The target population for this study was all 400 employees from quality assurance, human resource, finance, internal audit departments. Purposive sampling was used to select the 4 departments dealing directly with corporate governance and operational performance issues. The study used questionnaires as research instruments to collect data. Primary data from the field was edited to eliminate errors that might be made by the respondents. The study also used secondary data collected from financial records of 16 major auto-service firms in the country. The data collected included return on assets and revenue growth. Coding was done to translate question responses into specific categories so as to organize and reduce research data into manageable summaries. Quantitative data was analyzed using descriptive statistics such as mean and standard deviation with the use of Statistical Package for Social Sciences (SPSS) version 20.0. The correlation results revealed that there was no multicollinearity among the independent variables. Regression was conducted to get the effect of individual variables on the dependent variable. The study concludes that board independence has a positive and significant effect on operational performance of Auto-Service Industry in Nairobi County, Kenya. The study also concludes that organization ownership has a positive and significant effect on operational performance of Auto-Service Industry in Nairobi County, Kenya. Based on the findings, the study recommends that the management of Auto-Service Industry in Kenya should strengthen board independence by ensuring that a substantial portion of the board members are independent from the company’s management. Independent board members are more likely to provide unbiased oversight, make objective decisions, and challenge the status quo when necessary.

Keywords: Corporate Governance, Operational Performance, Board Independence, Organization Ownership


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