RESULTS AND ANALYSIS
In this section, we are going to do the analysis of collected data on the impact corporate governance has on firm performance. Selected data is going to be analyzed by using the statistical package for social sciences SPSS tool and some little application of excel spreadsheet documental analysis. Therefore various analysis carried out on the data will involve time variations and basic statistical studies and hypothetical relations. The set of data presents hypothesis test that needs to be analyzed based on the type of variable in question. The following section shows the set of variables that are going to be analyzed based on the relationship between corporate governance and firm performance. The following table shows correlation between various factors used during analysis:
| board size | meetings | market c | shareholder | ROE | current a/b | common equity | dividend | |
| Column 1 | 1 | |||||||
| Column 2 | 0.0687381 | 1 | ||||||
| Column 3 | 0.3371101 | 0.006101 | 1 | |||||
| Column 4 | 0.1854222 | 0.023745 | 0.819656 | 1 | ||||
| Column 5 | 0.0007455 | 0.053883 | -0.02193 | -0.0951914 | 1 | |||
| Column 6 | -0.1553834 | 0.319156 | -0.13782 | -0.0990739 | -0.07128 | 1 | ||
| Column 7 | 0.0993255 | 0.060874 | -0.07337 | -0.0625277 | 0.024314 | -0.0665342 | 1 | |
| Column 8 | 0.27941 | -0.06577 | 0.377783 | 0.40120294 | -0.03196 | -0.3556128 | 0.109564751 | 1 |
Table 1: Table of correlation
The above results are used in studying the relationship existing between the various factors that were being studied. For instance, literature review required that study be made for the correlation analysis on the number of factors being studied under corporate governance. Therefore the table above gives the respective correlation existing between the eight variables studied for firms used in the investigation.
For instance looking at the correlation between board size and other factors, it is recorded that there is a minimal relationship with three main factors under corporate governance. For example looking at the correlation between board size and number of board meetings, it is found that they both have got a correlation coefficient of 0.0687 which much smaller value. The same is seen for the correlation between board size and return on equity and common equity in which it records correlation of 0.00074 and 0.0993 respectively.
On the other hand, board size seems to display major relationship with other variables except for current ratio which has recorded negative correlation of -0.15538. The rest of the variables seem to have close resemblance with patterns in board size. For example market capitalization shows a correlation of 0.33 which is somehow small but compared to others, together with shareholder equity and dividend yield enjoy little correlation with board size.
The next set of statistic that needs to be analyzed is the number of board meetings which show a negative correlation with dividend yield. It is recorded that statistical correlation between dividend yield and the number of board meetings is -0.0676 while current ratio is the only variable displaying appreciable relationship with board meetings. All other factors such as market capitalization, shareholder equity, return on equity and current ratio have displayed a minimum correlation with the number of board meetings. Therefore the only factor that can be affected by the number of board meetings, in this case, is current ratio while the others are not affected in any way by the meetings being attended.
The next section to be analyzed for correlation is market capitalization which has shown a major relationship with shareholder equity and somehow little relation with dividend yields. It is recorded that with shareholder equity it holds total correlation of about 0.8 while with dividend yield overall correlation adds up to 0.3. For other variables market capitalization is seen to display a negative correlation meaning that no matter what happens with other factors, their impact on capitalization in the market will remain at a minimum level. Therefore in studying the relationship between market capitalizations with other factors, it can be concluded that the two sets share minimum correlation and changes in other factors affects market capitalization at a minimum.
Next section analyzes the correlation between shareholder equity and the other factors. Here it is seen that it holds correlation of 0.4012 with dividend yield while on return on equity, current ratio and common equity it has a negative correlation. From this analysis, it is concluded that with variation made on other factors, shareholders equity can only be affected by dividend yield but others will not affect or be affected by changes in shareholder equity.
Correlation analysis for return on equity has been previously presented for other variables that have been discussed earlier. But complete analysis shows that in relation to current ratio and dividend yield shows that the two have got negative correlation with return on equity. For common equity, results show the considerably low level of correlation of about 0.0243. The level shows that when either of them is varied the resultant change in another side would display minimum effect. This implies that either of the variables has got a minimum impact on how the other variable changes. For negative correlation, variables involved would result in opposite change to the other variable so that when the return on equity increases, those with negative correlation will decrease in value.
The last section to be analyzed is correlation analysis for the current ratio. The table presented from excels spreadsheet shows that there is a negative correlation between current ratio and the two variables of common equity and dividends yield. For instance, the relationship between current ratio with common equity and dividend yield has got a correlation coefficient of -0.067 and -0.356 respectively. The results show that when varied, current ratio would result in a negative change on common equity by about 0.067 while for dividend yield it gives the value of 0.356. This means that there is the considerably higher amount of negative impact that current ratio possess on dividend yield when compared to common equity.
Next section is going to analyze these factors by looking how each one of them relates to others by looking at the role the play in firm performance. The main determinant used for determination of performance will return on equity. The factors will be studied relative to a number of firms used in the sample thus standard deviation from the mean, mean and sample total will play a major role in making an inference. Since companies involved have proven record of performance any slight deviation from mean tells a lot about factor being analyzed.
It has been seen that there are various factors that play a major role in impacting corporate governance to enhance company performance. Based on the results taken the following sets of variables are going to be analyzed and the present hypothetical question that is to be answered from the output presented by the Statistical packages for social sciences tool. The main method that is going to be employed in the study is creating a hypothetical question through statistical null and alternative hypothesis then making a valid decision on which side is to be chosen.
Analyzing on board size in relation to corporate governance
The section is going to look at statistical results presented from board size analysis on the set of firms selected. This section thus has to infer on how board size and corporate governance are related in ensuring firm performance is effective. The following diagram presents analytical results on descriptive statistic made on board size in relation to other factors:
|
Descriptive Statistics |
||||||
| N | Range | Mean | Std. Deviation | Kurtosis | ||
| Statistic | Statistic | Statistic | Statistic | Statistic | Std. Error | |
| Board Size | 129 | 11 | 11.77 | 2.163 | -.170 | .423 |
| Valid N (listwise) | 129 | |||||
| Column1 | |||
| Mean | 11.76744186 | Skewness | 0.17836 |
| Standard Error | 0.190467991 | Range | 11 |
| Median | 12 | Minimum | 7 |
| Mode | 12 | Maximum | 18 |
| Standard Deviation | 2.163300531 | Sum | 1518 |
| Sample Variance | 4.679869186 | Count | 129 |
| Kurtosis | -0.169558886 |
Table 2: Descriptive statistic on board size
Analytical definition of board size is the total number of members the board is constituted of. There has not been any specific number conventionally agreed on to constitute board size. Research also suggests that an ideal board should constitute of a smaller number of the member with reason that it enhances fast decision making. For large numbers of board members, statistics show that it becomes difficult for members to reach a decision and it’s usually easily manipulated by the management. The figure below shows a correlation between board size and market capitalization which also helps in understanding how the number of board members helps in improving on market capitalization. Therefore for given values of dividend yield then it means that board size played given role in total final dividend percentage and vice versa. The values presented shows correlation of 0.18 which is rather small meaning the two operates in independent circumstances.
| Correlations | ||||
| Control Variables | Board Size | DIVIDEND YIELD | ||
| MARKET CAPITALIZATION | Board Size | Correlation | 1.000 | .183 |
| Significance (2-tailed) | . | .039 | ||
| Df | 0 | 126 | ||
| DIVIDEND YIELD | Correlation | .183 | 1.000 | |
| Significance (2-tailed) | .039 | . | ||
| Df | 126 | 0 | ||
Table 3: Table of correlation between market dividend yield and board size under market capitalization
Therefore it has been argued that small boards are effective as compared large boards which have proven ineffective and it has shown that it becomes difficult to enhance coordination between board members when it grows big. It thus proves that there is a high cost involved in coordinating large boards and significant delays when it comes to passing information. With such large group, there is a tendency for other members to fail in accounting their input and it makes it difficult for members to reach a conclusive decision.
Hypothetical study to be used during analysis and measurement of relationship between performance and number of members or rather board size is as follows:
Ho: there is no relationship between number of members in the board and performance of the firm
Ha: there is negative or positive relationship between board size and company performance
From the statistic presented in the above table of descriptive statistics, the values presented shows that for a total of 129 companies tested, there is the standard deviation of 2.163300531. The value is too small showing that the total number of board members for most companies is kept at 12 which is rather a small number. The given results help to infer on the earlier hypothesis for board size which shows that most companies would keep their board size small. This has ensured that their activities run efficiently enhancing performance. Therefore on the null hypothesis, the decision is to reject the null hypothesis and infer that there is a relationship between board size and performance of the firm.
Analyzing Independence within the board in relation to firm performance
It has been proven that for the board to be said it is independent, it needs the number of non-executive directors to be kept at a minimum. It has been difficult in deciding the relationship between board independence and firm’s performance with regard to a number of non-executive members present on the board. For instance executive members seem to have enough knowledge about the company thus their number representation seems to have a significant impact on performance. On the other side, the number of non-executive directors seems to have a positive impact on performance since they provide a professional output. Thus this section provides a rather difficult hypothetical analysis that requires being studied on.
Thus looking at firm strategy, evidence shows that independent directors will be reputation driven thus not allows instances of negligence. Thus here they need to make scrutinized decisions which make them a better choice in dominating the board. Therefore proper study will need to be made on the two variables on how they affect firm’s performance and can follow null hypothesis shown below:
Ho: there is no significant relationship seen between independence of the board and firm performance. Therefore above criteria proves that no matter what independence of board seems to be like, it will never affect the financial performance of any given firm.
Ownership structure analysis in relation to firm performance
The section tries to analyze the relationship between firm ownership to its performance and here analysis is done based on a total percentage of shareholders’ percentage. The following figure shows descriptive analysis for the shareholder’s results:
| Descriptive Statistics | ||||||
| N | Range | Mean | Std. Deviation | Kurtosis | ||
| Statistic | Statistic | Statistic | Statistic | Statistic | Std. Error | |
| COMMON SHAREHOLDERS’ EQUITY | 140 | 152658796 | 19935512.83 | 31083076.045 | 6.932 | .407 |
| Valid N (listwise) | 140 | |||||
| Column1 | |||
| Mean | 19935512.83 | Skewness | 2.68724851 |
| Standard Error | 2626999.397 | Range | 152658796 |
| Median | 8099500 | Minimum | -2650000 |
| Mode | #N/A | Maximum | 150008796 |
| Standard Deviation | 31083076.05 | Sum | 2790971796 |
| Sample Variance | 9.66158E+14 | Count | 140 |
| Kurtosis | 6.931972749 |
Table 4: Descriptive statistics on shareholder’s equity
Results presented in the table above shows that there is greater variation between each section of shareholders’ equity thus helping in making a correct assessment. It is seen that for the selected set of companies the total standard deviation is as large that total variance goes beyond obvious. It means that all companies that were tested have different opinions when it comes to ownership of the company.
At this point, it has been argued that ownership of any given firm has got a major impact on the structure in governance thus having a major impact as far as performance of the firm is concerned. Therefore looking at major countries it is clear that over half of the organization is owned by stockholders while in others control is highly linked to the firm’s ownership. To understand this concept study need to be made on the percentage of institution’s shares which makes institution serve as major external monitoring agent.
Therefore designing hypothesis for this study will imply that ownership structure has positive performance relationship. Therefore hypothetical results shows that all tests made for various locations have the following results on alternative hypothesis:
Ho: firm ownership has got no significant influence on firms’ performance
The decision is to accept the null hypothesis and conclude that ownership of the firm basically looking at shareholders equity has got no significant relationship with the performance of the firm.
Diversification within the board analysis
It is seen that diversification within the board breeds suitable environment for the development and performance of any given firm. For instance looking at population present within the board, one can confirm that a heterogeneous environment ensures that there is no room for manipulation from external factors such as executive directors. Also when the board is highly diversified and with gender consideration it promotes equality within the organization ensures effective decision making for an organization which confirms diversity to be a positive strategy.
Another advantage associated with diversification within boards of organizations is that having diverse representation ensures no domination with decision making. Therefore firms whose boards recognize diversification enjoy the privilege of having decisions made without bias. Therefore taking hypothetical analysis on gender diversification it can be analyzed on whether it helps towards ensuring proper performance of the firm or not. Here it is recorded that gender diversity enjoys support from most firms as it ensures a variety of advancements within the company. Analytical study can follow the following research criteria for both null and alternative hypothesis:
Ho: there is no significant relationship between board diversity with firms’ financial performance
Ha: there is positive or negative impact of board diversity on the performance of films
Therefore looking at statistical analysis carried out on various companies it shows that there are many positive impacts associated with diversification on firm performance. For instance looking at decision-making strategy it is seen that having a variety of opinions from different groups will ensure that final results are efficient.
Overall descriptive statistics analysis
The section is going to look at all the stated variables that are used in determining firm performance on view of corporate governance. Some sections above have represented their descriptive statistics and thus here clear relationship will have to be made on how they interact. The following table present SPSS results for descriptive analysis on all major variables:
| Descriptive Statistics | ||||||
| N | Mean | Std. Deviation | Variance | Kurtosis | ||
| Statistic | Std. Error | Statistic | Statistic | Statistic | Std. Error | |
| Board Size | 129 | .190 | 2.163 | 4.680 | -.170 | .423 |
| Number of Board Meetings | 128 | .234 | 2.650 | 7.022 | 5.277 | .425 |
| TOTAL ASSETS | 140 | 4910679.244 | 58103940.389 | 3376067888720271.500 | 7.736 | .407 |
| MARKET CAPITALIZATION | 138 | 3121524.873 | 36669614.389 | 1344660619454195.500 | 2.707 | .410 |
| COMMON SHAREHOLDERS’ EQUITY | 140 | 2626999.397 | 31083076.045 | 966157616430589.100 | 6.932 | .407 |
| RETURN ON EQUITY – TOTAL (%) | 136 | 14.754 | 172.056 | 29603.370 | 120.987 | .413 |
| MINORITY INTEREST | 140 | 98982.736 | 1171179.528 | 1371661486608.007 | 9.277 | .407 |
| TOTAL DEBT % COMMON EQUITY | 140 | 77.009 | 911.185 | 830258.842 | 93.574 | .407 |
| DIVIDEND YIELD | 138 | .143 | 1.681 | 2.827 | -.396 | .410 |
| TOTAL DEBT | 140 | 885615.472 | 10478743.580 | 109804067018245.330 | 1.165 | .407 |
| TOTAL LIABILITIES | 140 | 2396814.839 | 28359495.622 | 804260991914656.000 | 7.094 | .407 |
| Valid N (listwise) | 124 | |||||
Table 5: Results of overall descriptive analysis, source SPSS tool
From the table, above the number of board meetings recorded standard deviation of 2.560 with a total set of data made on a sample of 128 firms. Therefore looking at this kind of result it is seen that the number of board meetings recorded by most companies seems to be the same. With sample variance of 7.02 on the total sample of 128 companies, it means that most firms would prefer that number of board meetings be 8.36 which are approximated to be of 9.
Also from sample statistic, it is recorded that a minimum number of board meetings is four while the maximum is 21. Thus with this kind of results, it’s worth it to infer that since sample variance is within 7 for a total of 128 observations and mean is found to be 8 then number of board meetings have got a major impact on corporate governance. For instance from selected data statistic shown in the table below, then with a sample having a mode of 8, it means most companies would prefer to have their board meetings at a minimum of 8.
| board meetings | |||
| Mean | 8.367188 | Kurtosis | 5.276941 |
| Standard Error | 0.234214 | Skewness | 1.738727 |
| Median | 8 | Range | 17 |
| Mode | 8 | Minimum | 4 |
| Standard Deviation | 2.649829 | Maximum | 21 |
| Sample Variance | 7.021592 | Sum | 1071 |
Table 6: Descriptive statistic for board meetings
The next section that needs to be analyzed is impact played by a total number of assets owned by the company. Here it is presented that the values recorded from the sample set have got greatest value in variation. For instance, from a sample of 140 companies, all values presented show larger variation between them for the total asset.
| Column1 | |||
| Kurtosis | 7.73601366 | ||
| Mean | 47699968 | Skewness | 2.72951934 |
| Standard Error | 4910679.2 | Range | 302321445 |
| Median | 30465000 | Minimum | 801759 |
| Mode | 30465000 | Maximum | 303123204 |
| Standard Deviation | 58103940 | Sum | 6677995507 |
| Sample Variance | 3.376E+15 | Count | 140 |
Table 7: Descriptive statistics for total assets
In above table, it is evident that values presented have got major variation. For instance deviation of values from the mean of 47699968 is seen to be much higher. Thus for the set of data presented it is evident that total asset for companies has got no major impact on firm performance. Considering most companies selected have shown major performance in their daily operation, with such greater variation the inference is that total asset for any given firm has no impact on the firm’s performance. For instance, hypothesis presented will be to deny alternative hypothesis and accept null hypothesis presented such that there is no relationship between total asset and firm performance.
The following analysis is made on the impact played by market capitalization on firm performance. Data presented in descriptive analysis shows that set of data analyzed for market capitalization had a large level of deviation when related to the overall mean. Therefore from a sample of 138 firms, recorded standard deviation was too large to limit the observations as being very different from each other. Thus with this kind of deviation considering that sample was appreciably too small, it means that most companies have got varied levels in market capitalization. Therefore in studying the role played by market capitalization in relation to corporate governance, it is evident that there is little impact capitalization will play in firm performance. Thus statistical hypothesis shows that in relation to firm performance, market capitalization may not be a major factor in the determination.
Next set of data to be analyzed is a return on equity. Here it is observed that from a sample of 136 firms, the overall deviation recorded is somehow small compared to other factors. For instance, the standard deviation is seen to be 172 which mean that most of the values taken for analysis on return on equity deviate from the overall mean by 172. The value presented to show that considering a total number of firms put under study, there is the somewhat small amount of relationship between each set of statistic given. For instance, the sum of squares of deviations from the mean for all sets of data taken is small as it would be expected. Therefore inference for this section tries to explain the role played by return on equity in relation to firms’ performance. The set of data shown below represents the above analysis as displayed by descriptive analysis in excel spreadsheet:
| Column1 | |||||
| Mean | 42.00757 | Kurtosis | 120.9963 | Count | 136 |
| Standard Error | 14.75205 | Skewness | 10.76891 | Standard Deviation | 172.037 |
| Median | 20.865 | Range | 1996.01 | Sample Variance | 29596.72 |
| Mode | 17.99 | Minimum | -19.16 | Maximum | 1976.85 |
Table 8: Descriptive statistic on return on equity ROE
Therefore statistical inference required for the return on equity shows that most companies with a properly set return on equity percentage would enjoy average firm performance compared to those that do not put the variable under statistical scrutiny.
Next set of data that requires analysis for its relationship with company performance is dividend yield. Looking at the overall table for descriptive analysis, the statistical variable seems to have the least value for deviation from the mean. For instance, values taken from a sample of 138 firms presented total sample deviation of 1.681 which is rather small considering the size of the sample taken. Therefore looking at a set of data being analyzed, it can be concluded that most companies and firms have set their dividend at a certain level that ensures that their overall performance is guaranteed. Thus for a set of 138 companies, the following data shows that dividend yield plays a major role in firm performance.
| Column1 | |||
| Mean | 3.618333 | Kurtosis | -0.36892 |
| Standard Error | 0.143029 | Skewness | -0.10541 |
| Median | 3.62 | Range | 7.46 |
| Mode | 3.62 | Minimum | 0 |
| Standard Deviation | 1.680214 | Maximum | 7.46 |
| Sample Variance | 2.823119 | Count | 138 |
Table 9: Sample descriptive statistic for dividend yield
From above statistic, it is evident that with a mean of 3.618333 values ranging between 7.46 and zero has got a variation of 1.680214. With this kind of value, one can deduce that for 138 firms most of them have got their dividend yield at 3.62 as most record thus ensuring their success. Therefore in order to infer on the relationship between firm performance and corporate governance it is important to understand the impact of the dividend yield on performance. Therefore in order to retain suitable valuation in firm performance, most firms have ensured that they keep their yield at an average of 3.7 which makes them progress effectively.
So as to understand role played by this factor in firm performance hypothetical test is set in such a way that null and alternative hypothesis runs as follows:
Ho: dividend return does not relate with firm performance vs. Ha: there is relationship between dividend yield and firm performance
Thus from above results decision is to reject the null hypothesis and accept alternative hypothesis and conclude that there is a significant relationship between dividend yield and firm performance.
CHAPTER FIVE
CONCLUSION AND RECOMMENDATION
The chapter is concerned with making conclusions about research question that was being studied on. It employs concluding on research findings and making recommendations on areas that need further studies.
Conclusion
Results shown above were used in studying the impact of corporate governance on firm performance. Designing a hypothetical question formed the foundation for the analysis on the significance of various factors in relation to the performance of the firm. For instance, each section presented an alternative criterion that was to be checked for through correlation analysis and standard deviation confirmation before making an inference. In the first section of results and analysis, it was found that correlation analysis between various factors was kept at minimal.
On the other part of the descriptive analysis, there were many features of variables in corporate governance that were realized. For instance, looking at gender diversity, it was realized that it has got major effects when studying firm performance. For instance ensuring that the company’s gender is well checked for equality will ensure proper operation of its activities. The next section confirmed on the role played by the size of the board in ensuring that firm performance is well managed. Here it was statistically proven that firms which have got large board sizes, for instance, firms with large numbers of board members risk going through losses.
This is because there are many losses found to result from keeping firms with a large number of board members. One of the disadvantages of these large numbers is that it makes it hard for company or directors to make decisions concerning firm’s operation. The paper also introduced board independence as one the factor that is seen to affect firm’s performance. Despite some reasonable facts presented on the importance of board independence, statistical results showed that the two variables have got least relationship. Here it was presented that each side has got major impacts on firm’s performance thus showing that there is mutual dependence between members of the board with types of directors involved.
For instance, directors need the opinion of executive director presents so as to make informed decisions about the company. On the other hand executive directors also need an opinion from the non-executive directors who are practicing professional board membership. Thus there was little evidence to infer that board independence ensures the performance of the firm. The last section that was analyzed was the return on equity and this section showed how it relates to overall firm performance. Other factors that were put through descriptive analysis include dividend yield, current ratio, and common equity.
Therefore statistical research made did not give enough evidence required to infer on corporate governance influencing firm performance. Therefore there is a need for extra studies to be made to understand the concept. Thus the paper was studying some of the roles played by corporate governance in ensuring the firm performs efficiently with the analysis made on various factors of governance. Some factors presented showed acceptable evidence of corporate governance affecting firms’ performance. Other factors showed how unrelated they are to firms performance as they showed no significant relationship in trend for all companies that were being tested in the sample.
Therefore above analysis has presented various concepts that can be used in understanding corporate governance as an internal factor in firms’ operation but not as a factor that runs entire performance of the firms. The above study based its findings by analyzing return on equity as one of the proximities for testing firm’s performance. Therefore the need arises for how other proximities may be affected by the various factors put under analysis.
Recommendation
There is a need for further studies to be made on the role played by chief executive officers CEO in firm performance. As seen earlier there is a need for companies to practice firm independence which ensures that board size is composed of less executive directors. Therefore there is a need for further studies to be carried out to understand some of the effects of company CEOs in firm performance. Since CEOs form the major foundation for corporate governance, it means that they have got their own share of contribution in the performance of the firm which raises the need for further studies.
Another area that needs to be studied for is the role played out by firm performance in ensuring proper governance. As a tool designed to hypothetically study firm operations, there is growing need for researchers to find out if there is any valuable reason to confirm that in some way firm performance leads to proper governance. The study made n governance can be related with that made on firm performance and help towards understanding relationship between the two lines of operation in firms.
