Corporate governance is currently an international topic due to the globalization of businesses.
It is acknowledged to take up a significant role in the management of organisations in both developed and developing countries. Developing countries differ from developing countries in a wide variety of ways. In this manner, there is a need for developing countries to build up their corporate governance models that consider the social, political and mechanical conditions found in every country (Mulili & Wong, 2011). As accentuated by the Australian Standard (2003), the corporate governance is considered as the procedure, by which organizations are coordinated, controlled and held responsible.
This infers corporate governance encompasses the authority, accountability, stewardship, authority, course and control exercised over the time spent managing organisations. It has come to be a global dictum that the quality of corporate governance has an imperative effect on the soundness and unsoundness of banks.Firm value is the measure of a company’s total value that is often used as a comprehensive alternative to equity market capitalization. The market capitalization of an organization is essentially its share price multiplied by the number of shares a company has outstanding.Firm value embodies the economic measure mirroring the market value of a business. It is a summation of claims by creditors and investors.
Palepu and Healy (2008) take note that firm value is a fundamental metric utilized in financial modelling demonstrating, business valuation, portfolio analysis, accounting and risk analysis.Today, corporate governance has become a source interest to policymakers, stakeholders and corporations, particularly after recent outrages (Dincer ; Dincer, 2013). Financiers are keen on understanding what organizations ought to do to maximize shareholder value.
Currently, there is widespread evidence that good corporate governance is linked to greater firm performance.As stated by Weiying and Baofend (2007), well governed corporations have been noted to have higher firm value. Dincer and Dincer (2013) additionally take note that there is boundless proof that good corporate governance is associated with greater firm performance.
In corporate governance firm level differences have a significant impact on firm value. Furthermore higher price performance is associated with higher disclosure quality, focused firms as well as higher external ownership concentration.Further, the authors take note that failures of various well -known organizations made it clear that organizations ought to undergo further modifications to secure their investor’s interests, to escalate the firm’s transparency and to ensure investor’s reliance on the directors’ management (Weiying ; Baofend, 2007).Evidently, there appears to be a large consensus among both professionals and academics to demand from public firms more efforts to enhance their corporate governance practices (Rose, 2007).
As of now, developed economies, for instance, Holland, France, Australia, Germany, Belgium, Canada, United Kingdom, and the United States as of now have corporate governance codes for their listed companies. The codes were executed to implement analyst’s and auditor’s independence and in addition to control both corporate officers and institutional investors’ conduct to secure the minority investors.Moreover, the developed countries have chipped away at the change of transparency and audit committee, concentrating on viewpoints, for example, directors’ remuneration and security against takeovers, in this manner increasing the confidence of investors in the managerial group (Sharma, 2013).Apart from the efforts on the regulation side, amid the current years, new efforts have been made worldwide to define appropriate corporate governance structures whose impact would significantly influence a firm’s value. To recognize such systems, several researchers have analysed the consequences for an organization’s value of an extensive rundown of elements identified with control and managerial conduct (Kleinschmidt, 2007).
As a result, investigate into corporate governance practices have distinguished an assortment of components that guarantee that business managers act to the investors’ interest.A study on corporate governance and firm performance in Africa shows that the course and the degree of effect of governance is subject to the performance measure being examined. Coleman (2007) established that large and independent boards improve firm value and that combining the positions of CEO and board chair negatively affects corporate performance.Further, research demonstrates that the size of audit committees and the recurrence of their meetings have positive influence on market based performance measures and that institutional shareholding enhances markets valuation of firms. In the African continent, corporate governance matters are driven by countries’ companies Codes, Securities and Exchange Commissions, and the stock exchange listing requirements (Coleman, 2007).
Different factors include regulations and rules and other country specific regulatory agencies. Nevertheless, though corporate governance in Africa is off to a decent begin, there is insufficient tentative research that limits the basis for comparison of the continent’s corporate governance experiences and results with different continents.Banking services and products in Kenya are critical as they p an imperative role in supporting economic growth. A modern financial structure contributes to economic advancement and the enriched living standards through providing diverse financial services to the entire economy (Chase & Bollard, 2011).
The term firm value is employed to allude to a subjective measure of how well a firm can utilize assets to generate income from its primary approach to business. Similarly, it can be used to refer to the company’s overall financial health over a given timeframe and can be utilized to compare firms operating in similar industries or to compare sectors in aggregation. Various proxies are used to evaluate and measure firm value.
They include solvency, return on equity, sales growth, investment opportunities, dividend decisions, total debts, and profitability. These measures can be extricated from a company’s financial statements.This analysis covers four aspects of corporate governance which are board size, board independence, ownership concentration and audit committee.
This section of the paper investigates the foundation of corporate governance and firm value. It highlights background information about the topic and the problem statement. Moreover, this chapter features the study objectives, questions, significance and scope.