Relationship Between Corporate Governance Practices and Financial Performance of Tea Factories in Kisii County, Kenya

Abstract

Tea farming contributes about 40% to agricultural export'Tii Kenya. Despite the overall contribution, Kenya Tea Development Agency (KTDA) tea factories in Kisii County have continued to perform poorly leading to 5% of farmers exiting the industry for the period 2010 to 2015. Previous studies show that corporate governance practices influence financial performance of firms. However, the relationship between corporate governance practices and financial performance of the KTDA factories in Kisii County is unknown. The purpose of the study was to establish the relationship between corporate governance practices and financial performance of tea factories in Kisii County. Specific objectives were to; establish the relationship between board composition and financial performance of KTDA factories; establish the relationship between stakeholder involvement and financial performance of KTDA factories; and to assess the relationship between audit committees and financial performance of KTDA factories in Kisii County. The study was guided by the stakeholder theory and correlational research design. Out of a population of 50 .respondents, a saturated sample of 40 was taken. A pre-test of 10 questionnaires was conducted. Reliability coefficient of 0.83 and content validity index (CVI) of 0.79 were computed. The results were above the threshold of 0.7 indicating that the data collection instrument was valid and reliable. Primary data were from Questionnaires while secondary data were from the factories' documents. Correlation and multiple regression analysis were used to analyse the relationship between the corporate governance practices and financial performance of the tea factories. The study revealed that stakeholder involvement (B= Q.293, p= 0.007) and audit committee (B= 0.381, p= 0.034) both had positive and significant influence on financial performance while board composition had insignificant positive influence on financial performance of the tea factories. This implies that when stakeholders are involved in decision making, financial performance will significantly increase by 0.293. Similarly when audit committee is involved in decision making, financial performance of the tea factories will significantly increase by 0.381. The study concludes that Boards composition and audit committee significantly influence financial performance of KTDA factories in Kisii County. The study thus recommends that there should be continued involvement of audit committees and stakeholders in decision making to enhance financial performance. The study findings may be helpful to decision makers in the tea industry and provide literature for academia.