CORPORATE GOVERNANCE, FIRM SIZE AND PROFITABILITY OF ENERGY AND PETROLEUM FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA
Jeniffer Masaa Venza - Master of Business Administration Student, Department of Accounting and Finance School of Business, Economics and Tourism, Kenyatta University, Kenya
Dr. Moses Odhiambo Aluoch (PhD) - Lecturer, Department of Accounting and Finance, School of Business, Economics and Tourism, Kenyatta University, Kenya
ABSTRACT
Corporate governance is a key determinant of the sustainability and profitability of firms, especially in energy and petroleum sector that face particular challenges. Energy and Petroleum firms must implement customised governance solutions due to sector-specific issues such as infrastructure constraints, volatile global oil prices, and regulatory restrictions. Even though corporate governance is becoming more and more important in Kenya, listed energy and petroleum firms still exhibit uneven compliance and enforcement. Through empirical data, this current knowledge gap was addressed by probing into corporate governance practices impacts (board size, board tenure, board remuneration, board committees and board meetings) on profitability of listed Nairobi Securities Exchange energy and petroleum firms, proxied by Return on Equity and Return on Assets with examination of firm size’s moderating effect. Financial statements of Nairobi Securities Exchange listed energy and petroleum firms was the main sources of data for the years 2015-2024. The study employed descriptive research with panel data was analysed using fixed effect or random effect. The review’s target populace was the 4 energy and petroleum listed firms as at December 2024. Diagnostic tests of stationarity, multicollinearity and hausman were undertaken. Results were presented by tables and figures. Ethical considerations were upheld throughout the examination. Utilizing correlation and multiple regression model, the review established that board size positively and significantly influenced profitability, while board tenure had a significant negative effect. Board remuneration and board meetings showed positive but statistically insignificant relationships with profitability. Board committees could not be tested due to data non-stationarity. Additionally, firm size significantly moderated corporate governance’s relationship with profitability, particularly for board size and board meetings. The study concludes that larger boards enhance oversight and strategic input, while extended board tenure may hinder adaptability and monitoring. Remuneration and meeting frequency alone do not guarantee improved performance. Finally, firm size is concluded to strengthen governance mechanisms’ effectiveness in larger organizations, highlighting vitality of scale-sensitive governance structures. From the results, the study recommended that management should determine optimal board size that is necessary for effective operation and decision-making to ensure the listed firms at Nairobi security exchange obtain higher returns. In additional, the management should determine the length of board of director to earn stakeholders trust hence gaining interest on the commitment hence output ensuring higher returns for the shareholders.