The Effects of Board Structure Characteristics on Corporate Financial Performance in Developing Economies: Evidence from East African Stock Markets

Erick Lusekelo Mwambuli


This study examine the linkage between board structure characteristics and corporate financial performance in a developing market, East African stock markets. To achieve the objective of this study, we used a strongly balanced panel dataset of 240 observations including 30 non-financial listed firms in East African region covering the period from 2006-2013 (8 years period). Measures for corporate financial performance employed were return on assets (ROA) and return on equity (ROE) as dependent variables for econometric Model 1 and Model 2 respectively and explanatory (independent) variables for board structure characteristics were board size (BS), number of non-executive directors (NED), CEO duality (CD) and board and managerial shareholdings (BMS).furthermore, the effects of control variable such as firm size (SIZ) has been also examined. The panel corrected standard errors (PCSEs) and random effects (RE) regression models were employed for Model 1-ROA and Model 2-ROE respectively to analyze the data. Our results indicate a statistically significant positive effects of board size (BS), number of non-executive directors (NED) and CEO duality (CD) on East African listed firm’s financial performance while board and managerial shareholding (BMS) has a statistically significant negative effects on East African listed firm’s financial performance at 5% significance level. Finally, the study recommends East African listed firm’s to adopt a larger size of board of directors , large proportion of non-executive directors in the board, CEO-Chair position in their organization structure and a small portion of board and managerial shareholding on their ownership structure in order to improve their financial performance, but also securities markets regulatory authorities in East African region such as East African member states securities regulatory authority (EASRA) and their respective countries securities markets regulatory authorities to stimulates new efforts towards better corporate governance practices especially board structure characteristics due to its statistically significant effects on companies financial performance and future research can be extended after considering other board structure characteristics which were not included in this study like board meeting, board attendance, biography of board members and existence of the position of chief financial officer (CFO) in board of directors (BOD).

Keywords: Board Structure Characteristics, Corporate Financial Performance, Panel Data, Developing Economies, East African Stock Markets.

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