Measuring the Relationship between Board Composition; the Proportion of Non-Executive Directors on Board, Board Size and CEO Duality, and Performance. A Case of Zimbabwe Stock Exchange Listed Banking and Financial Firms

Abstract

This research seeks to measure the relationship between board composition (the proportion of NEDs on board, board size and CEO duality) and performance using ROA and ROE: A case of listed Banking and Financial firms in Zimbabwe. The Zimbabwean Banking and Financial sector financial crisis of 2002-2005 resulted in many Banking and Financial firms being liquidated and some placed under curatorship. This crisis prompted the RBZ to offer guidelines to restructure boards in this sector recommending a minimum of five directors made up with at least 60% NEDs and CEO non-duality.  Despite all these regulations, the failure rate in this sector is still very high. Therefore this research was seeking to establish whether it is a matter of board composition or they are other factors which influences the performance of Banking and Financial firms in Zimbabwe. Previous studies produced inconclusive results regarding the relationship between board composition and performance with some finding a significant relationship and others not finding any relationship. The research used explanatory and case study research designs in drawing out findings using Chi-square and OLS regression models to validate or invalidate hypotheses. Primary data was drawn from a sample of twelve expects in the Banking and Financial sector using questionnaires and structured interviews. Secondary data was drawn from the financial statements of six listed Banking and Financial firms over a period from January 2009-December 2012. Using Chi-square test, the results indicated that performance is not related to board composition. On the other hand using OLS method, only board size was found to be significantly related to performance.

Keywords: Corporate governance, Board composition, Board Size, CEO duality,  Performance