CORPORATE GOVERNANCE AND PERFORMANCE OF COMMUNITY-BASED ORGANIZATIONS IN NAIROBI CITY COUNTY IN KENYA
CORPORATE GOVERNANCE AND PERFORMANCE OF COMMUNITY-BASED ORGANIZATIONS IN NAIROBI CITY COUNTY IN KENYA
Vane M. Momanyi - Department of Accounting and Finance, Kenyatta University, Kenya
James M. Gatauwa (PhD) - Department of Accounting and Finance, Kenyatta University, Kenya
ABSTRACT
Community-Based Organizations (CBOs) in Nairobi City County are facing poor financial performance due to decreased donor financing. The weak management systems and mishandling of cash increase the severity of the financial challenges in the CBOs. This study examined the effect of corporate governance on financial performances of community-based organizations operating in Kibera Sub County, Nairobi Kenya. The primary aim of this study is to evaluate the influence of corporate governance on the financial performance of Community-Based Organizations (CBOs). Specifically, it investigates how the audit committee, directors' compensation, and the quality of external audits affect the financial outcomes of these organizations. The research is grounded in stakeholder theory, agency theory, and stewardship theory. Employing a descriptive research design, the study focused on a population of 11 CBOs to achieve its objectives. A census sampling technique was applied to select these organizations operating in Kibera Sub-County, Nairobi, Kenya. Data was collected from secondary sources by analyzing the financial statements and audit reports of the CBOs. Descriptive statistics and correlation analysis were utilized to interpret the data, while a balanced panel data model was employed to describe the collected information. Several diagnostic tests, including those for autocorrelation, multicollinearity, normality, heteroscedasticity, and the Hausman test, were conducted. Ethical considerations such as confidentiality and informed consent were also prioritized in the study. The findings indicated that managerial ownership has a positive yet insignificant impact on the financial performance of CBOs; directors' remuneration similarly shows a positive but insignificant effect. Conversely, the board structure demonstrated a positive and significant influence on the financial performance of CBOs in Kibera. The audit committee was found to have a positive but insignificant effect, while the quality of external audits significantly and positively impacted the financial performance of these organizations. The research recommends that policymakers should focus on strengthening the governance framework related to board structure. This can be achieved by establishing clear guidelines that promote optimal board size and composition, ensuring a balance between executive and non-executive members, and fostering diversity in skills and experience.
