Effect of Corporate governance on Financial Distress among the Firms Listed at Nairobi Securities Exchange

Abstract

This study delves into the intricate effect of corporate governance on financial distress in Kenya among the firms listed at the Nairobi Securities Exchange. The recent economic growth and development in Kenya have attracted increased attention to the effectiveness of corporate governance practices adopted by businesses. The study examines the effect of various corporate governance factors, such as Board Size, Board Independence, Audit Committee Independence, and Firm Size, on financial distress in listed companies on the Nairobi Securities Exchange. To evaluate the significance of each factor in influencing financial distress, the analysis employs a Type I Sum of Squares approach using XLSTAT software. The findings reveal that Board Size and Firm Size exhibit highly significant relationships with financial distress, indicating their crucial roles in influencing a company's financial stability. Furthermore, Board Independence demonstrates a statistically significant relationship with financial distress, underscoring the importance of independent directors in mitigating financial risks. Although Audit Committee Independence exhibits borderline significance, it provides indications of a potential relationship with financial distress. Overall, the study offers valuable insights into the factors affecting financial distress in Kenyan companies and emphasizes the significance of robust corporate governance practices in ensuring financial stability and resilience.