Corporate governance practices and financial performance of firms: a case of listed companies on the Uganda securities exchange

Abstract

The purpose of the study was to establish the effect of corporate governance practices on financial performance, a case of listed firms on the Uganda securities exchange. The study specifically examined the effect of board size, board independence and separation of ownership and control on return on sales, return on assets and return on equity. The study therefore adopted three hypotheses that were used to test the objectives and was guided by two theories, the agency theory and stakeholder theory. The study used a longitudinal research design adopting a quantitative approach. The study population was all firms on the Uganda securities exchange with a target population of fifteen firms. The study used regression analysis to address the study objectives, a Hausman specification test permitted use of the random effects model as the most appropriate. The study established that there is a significant effect of board size and separation of ownership and control on financial performance. However, it revealed that the number of non-executive members has a statistically insignificant effect on firm financial performance. The study therefore recommended that existing listed companies of USE should consider downsizing the board membership seeing that it has no ensuring benefits but rather increased costs resulting in poor or low returns and also advocate for increase in ownership concentration as this would increase financial performance.