BOARD COMPOSITION AND FINANCIAL PERFORMANCE AMONG PRIVATE LIMITED COMPANIES IN UGANDA
DOI:
https://doi.org/10.47672/ajlg.524Keywords:
Board Composition, Financial Performance, Private Limited Companies.Abstract
Purpose: The study aimed at examining the relationship between board composition and financial performance of private limited companies in Uganda.
Methodology: A positivist approach and a cross-sectional research design were employed to collect data from 394 companies in Central and Western Uganda. An open-ended questionnaire was used to collect data from board members and executives from companies. Pearson correlation and standard linear regression were employed for data analysis.
Findings: Results indicate a positive relationship between non-executive directors on the Board and the financial performance of private companies.
Unique Contribution to practice and policy: Private Limited Companies in Uganda will attain the much-desired insights in the context of how board composition links with their financial performance. The study recommends the management`s careful consideration of long survival prospects as well as the formulation of appropriate policies and survival strategies that oversee long existence to guarantee benefits and optimal performance coupled with profitability that emanate from a well-composed board.
Study Limitation: The study was limited to only board composition, leaving out other board characteristics that influence financial performance. Besides, it was only positivistic hence subject to methods bias that could have affected the validity of results.
Downloads
References
Abatecola, G., Farina, V., and Gordini, N. (2014). Board effectiveness in corporate crises: lessons from the evolving empirical research. Corporate Governance.
Adams, R. B., Hermalin, B. E., and Weisbach, M. S. (2010). The role of boards of directors in corporate governance: A conceptual framework and survey. Journal of economic literature, 48(1), 58-107.
Adnan, A., and Ahmed, N. (2019). The Transformation of The Corporate Governance Model: a Literature Review. Copernican Journal of Finance and Accounting, 8(3), 7-46.
Ahmed, A., Higgs, H., Ng, C., and Delaney, D. A. (2018). Determinants of women representation on corporate boards: evidence from Australia. Accounting Research Journal.
Arosa, B., Iturralde, T., and Maseda, A. (2013). The board structure and firm performance in SMEs: Evidence from Spain. Investigaciones Europeas de Dirección y Economía de la Empresa, 19(3), 127-135.
Baranchuk, N., and Dybvig, P. H. (2009). The consensus in diverse corporate boards. The Review of Financial Studies, 22(2), 715-747.
Bell, E., Bryman, A., and Harley, B. (2018). Business research methods: Oxford university press.
Bird, R. C., Borochin, P., Knopf, J. D., and Ma, L. (2019). Do Boards Have Style? Evidence from Director Style Divergence and Board Turnover. Evidence from Director Style Divergence and Board Turnover (August 9, 2019). University of Connecticut School of Business Research Paper(19-01).
Black, B. S., De Carvalho, A. G., and Sampaio, J. O. (2014). The evolution of corporate governance in Brazil. Emerging Markets Review, 20, 176-195.
Cabello, O. G., Gaio, L. E., and Watrin, C. (2019). Tax avoidance in management-owned firms: evidence from Brazil. International Journal of Managerial Finance.
Christofi, A., Christofi, P., and Sisaye, S. (2012). Corporate sustainability: historical development and reporting practices. Management Research Review.
Creswell, J. W., and Creswell, J. D. (2017). Research design: Qualitative, quantitative, and mixed methods approach: Sage publications.
Cruz, C. C., Gómez-Mejia, L. R., and Becerra, M. (2010). Perceptions of benevolence and the design of agency contracts: CEO-TMT relationships in family firms. Academy of Management Journal, 53(1), 69-89.
Dixon-Fowler, H. R., Ellstrand, A. E., and Johnson, J. L. (2017). The role of board environmental committees in corporate environmental performance. Journal of Business Ethics, 140(3), 423-438.
Domadenik, P., Prašnikar, J., and Svejnar, J. (2016). Political connectedness, corporate governance, and firm performance. Journal of Business Ethics, 139(2), 411-428.
Farhan, A., Obaid, S. N., and Azlan, H. (2017). Corporate governance effect on firms’ performance–evidence from the UAE. Journal of Economic and Administrative Sciences.
García-Olalla, M., and García-Ramos, R. (2010). Family ownership, structure and board of directors effectiveness: Empirical evidence from European firms. Paper presented at the 9th Annual IFERA Conference, Lancaster, United Kingdom.
Giannakopoulou, E. N., Thalassinos, E. I., and Stamatopoulos, T. V. (2016). Corporate governance in shipping: An overview. Maritime Policy and Management, 43(1), 19-38.
Gill, N. S. (2018). Relationship between diversity on the Board of directors’ and firm financial performance.
Gordini, N. (2012). The impact of outsiders on small family firm performance: Evidence from Italy. World Journal of Management, 4(2), 14-35.
Gyapong, E., Khaghaany, M. M., and Ahmed, A. (2020). The asymmetric role of corporate governance in CEO pay determination: evidence from South Africa. Applied Economics, 52(7), 671-693.
Hamidi, D. Y., and Gabrielsson, J. (2018). Chairpersonship and Board Strategy Involvement in Small and Medium-sized Enterprises. Journal of Leadership, Accountability and Ethics, 15(2).
Hashim, H. A. (2012). The influence of culture on financial reporting quality in Malaysia. Asian Social Science, 8(13), 192.
Heenetigala, K., De Silva Lokuwaduge, C., Armstrong, A., and Ediriweera, A. (2016). Investigation of criteria used for assurance practices of sustainability reporting in Australian listed companies: Victoria University.
Hendry, K. P., Kiel, G. C., and Nicholson, G. (2010). How boards strategise: A strategy as practice view. Long Range Planning, 43(1), 33-56.
Hussain, S., Ahmad, T., and Hassan, S. (2019). Corporate Governance and Firm Performance using GMM. International Journal of Information, Business and Management, 11(2), 300-316.
Imam, T., Ali, H., and Soo, H. S. (2017). Management and Administrative Sciences Review.
Jackling, B., and Johl, S. (2009). Board structure and firm performance: Evidence from India's top companies. Corporate Governance: An International Review, 17(4), 492-509.
Khan, A., and Awan, S. H. (2012). Effect of board composition on firm’s performance: A case of Pakistani listed companies. Interdisciplinary Journal of Contemporary Research in Business, 3(10), 853-863.
Khlif, W., Karoui, L., Ingley, C., and El Manaa, W. (2016). Family contingencies and board composition: evidence from Tunisia. Journal of African Business, 17(1), 16-32.
Khurshid, M. K., Sabir, H. M., Tahir, S. H., and Abrar, M. (2019). IMPACT OF OWNERSHIP STRUCTURE AND BOARD COMPOSITION ON FINANCIAL DISTRESS OF PAKISTAN STOCK EXCHANGE LISTED MANUFACTURING FIRMS.
Li, Y., and Yermack, D. (2016). Evasive shareholder meetings. Journal of Corporate Finance, 38, 318-334.
Machold, S., Huse, M., Minichilli, A., and Nordqvist, M. (2011). Board leadership and strategy involvement in small firms: A team production approach. Corporate Governance: An International Review, 19(4), 368-383.
Macías, A. J., and Román, F. J. (2014). Consecuencias económicas de la reforma de gobierno corporativo en un mercado de capitales emergente. Pruebas de México. El trimestre económico, 81(322), 357-412.
Maseda, A., Garcia-Ramos, R., Iturralde, T., and Arosa, B. (2016). Boards of directors in SMEs: An empirical evidence of board task performance. South African Journal of Business Management, 47(4), 47-58.
Mburu, W. H., and Kagiri, A. (2015). Effects of board composition on financial performance of banking institutions Listed at Nairobi Securities Exchange. International Journal of Science and Research, 4(7), 931-938.
Muchemwa, M. R., Padia, N., and Callaghan, C. W. (2016). Board composition, board size and financial performance of Johannesburg Stock Exchange companies. South African Journal of Economic and Management Sciences, 19(4), 497-513.
Müller, V.-O. (2014). The impact of board composition on the financial performance of FTSE100 constituents. Procedia-Social and Behavioral Sciences, 109(8), 969-975.
Nkundabanyanga, S. K., Ntayi, J. M., Ahiauzu, A., and Sejjaaka, S. K. (2014). Intellectual capital in Ugandan service firms as mediator of board governance and firm performance. African Journal of Economic and Management Studies.
O’Hagan, S. B. (2017). An exploration of gender, interlocking directorates, and corporate performance. International Journal of Gender and Entrepreneurship.
Ogunseyin, M. A., Farquhar, S. S., and Machold, S. (2019). The determinants of trust in the boardroom. In Research Handbook on Boards of Directors: Edward Elgar Publishing.
Ongore, V. O., Peter, O., Ogutu, M., and Bosire, E. M. (2015). Board composition and financial performance: Empirical analysis of companies listed at the Nairobi Securities Exchange. International Journal of Economics and Financial Issues, 5(1), 23.
Pandey, S. (2020). HUMAN CAPITAL AND NEW FIRM PERFORMANCE: FOUNDERS, EMPLOYEES AND BOARD MEMBERS.
Paniagua, J., Rivelles, R., and Sapena, J. (2018). Corporate governance and financial performance: The role of ownership and board structure. Journal of Business Research, 89, 229-234.
Pisano, G. P. (2017). Toward a prescriptive theory of dynamic capabilities: connecting strategic choice, learning, and competition. Industrial and Corporate Change, 26(5), 747-762.
Rao, K., and Tilt, C. (2016). Board composition and corporate social responsibility: The role of diversity, gender, strategy and decision making. Journal of Business Ethics, 138(2), 327-347.
Rashid, A. (2011). Board leadership structure and firm performance: An examination of resource dependence role. Corporate Board: Role, Duties and Composition, 7(1), 7-23.
Scafarto, V., Ricci, F., Della Corte, G., and De Luca, P. (2017). Board structure, ownership concentration and corporate performance: Italian evidence. Corporate Ownership and Control, 15 (1-2), 347-359.
Sengur, E. D. (2011). Do corporate governance index companies outperform others?: Evidence from Turkey. International Journal of Business and Social Science, 2(14).
Standage, M., Duda, J. L., and Ntoumanis, N. (2006). Students' motivational processes and their relationship to teacher ratings in school physical education: A self-determination theory approach. Research quarterly for exercise and sport, 77(1), 100-110.
Uganda Bureau of Statistics (2016). The national population and housing census 2014-main report. Kampala: Uganda Bureau of Statistics.
Tabachnick, B. G., Fidell, L. S., and Ullman, J. B. (2007). Using multivariate statistics (Vol. 5): Pearson Boston, MA.
Wells, P., Moyeen, A., and Ingley, C. (2019). Independent directors: experience and value in contrasting economic contexts. In Research Handbook on Boards of Directors: Edward Elgar Publishing.
Yamane, T. (1973). Statistics: An introduction analysis: Harper and Row.
Zahra, S. A., and Pearce II, J. A. (2008). 7 Boards of directors and corporate financial performance. The Value Creating Board: Corporate Governance and Organizational Behaviour, 15, 112.
Zuckweiler, K. M., Rosacker, K. M., and Hayes, S. K. (2016). Business students’ perceptions of corporate governance best practices. Corporate Governance.
Downloads
Published
How to Cite
Issue
Section
License
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work’s authorship and initial publication in this journal.
