BOARD STRUCTURE AND THE FINANCIAL DISTRESS: INSIGHTS FROM NON-FINANCIAL FIRMS LISTED AT NAIROBI SECURITIES EXCHANGE
John Oyaro - School of Business and Entrepreneurship, Jomo-Kenyatta University of Agriculture and Technology, Kenya
Florence Memba, (PhD) - School of Business and Entrepreneurship, Jomo-Kenyatta University of Agriculture and Technology, Kenya
Oluoch Oluoch, (PhD) - School of Business and Entrepreneurship, Jomo-Kenyatta University of Agriculture and Technology, Kenya
Ibrahim Tirimba (PhD) - School of Business and Entrepreneurship, Jomo-Kenyatta University of Agriculture and Technology, Kenya
ABSTRACT
Financial distress has been a major concern for managers, practitioners and scholars globally. For a long time, companies have faced financial distress worldwide. In the recent past companies such as Wirecard in Germany, Silicon Valley Bank and Signature Bank in United States as well as Signa Holding in Austria have collapsed. The phenomenon is the same in Kenya with companies such as Eveready East Africa, Karuturi Ltd, Mumias Sugar Company, Nakumatt Holdings and Uchumi Supermarkets having collapsed. Others such as Kenya airways have experienced financial distress. This situation creates Panic among the existing investors and may finally erode investor’s confidence and may result in loss of huge sums invested in the capital markets. As a result, there is need to tame the situation before investors lose confidence in the market. The focus of this study was to determine the effect of board structure on financial distress of non-financial firms listed on the NSE. This study applied the Z-score for emerging economies to test financial distress. The study was anchored on institutional theory. The study applied positivistic philosophical foundation. The research design applied was cross-sectional research design. The population comprised of 46 non-financial listed firms as at December 2023. A census of all the firms was conducted. The study utilised secondary data that was extracted from published financial statements and other annual reports of the respective individual firms for a period of ten years from 2014 to 2023. Both descriptive and inferential statistics were used to analyse the data. Univariate logistic regression analysis and Pearson's correlation analysis were used. Tables and graphs were used to present the findings. Results showed that a significant negative correlation exist between financial distress and board structure (r = -0.771; p=0.000). Regression analysis results showed that there is a strong negative relationship between board structure and financial distress. The descriptive statistical analysis revealed that, on average, 90.97% of board members are non-executive directors. However, the unilabiate analysis revealed that board structure accounts for 31.2% to 41.2% of the variance in financial distress among listed firms. Consequently, this study revealed that for every one-unit improvement in board structure, the odds of financial distress decreases by approximately 36.4%, as shown by the odds ratio (Exp(B)= 0.636). The study thus recommends that non-financial listed firms must endeavour to have well-structured and diverse boards in terms of independence, gender and board size.