ABSTRACT

The interest and focus in the modern corporate governance practices, especially on matters accountability received much attention following the high-profile collapses of mega firms in the recent past due to accounting fraud. Further interest rose following the financial crisis in 2008. These scandals attracted both public and political concerns in the corporate governance regulation. The governance system of any firm impacts on the ability of the corporation to respond to external factors and consequently its performance. Well governed entities tend to perform better, earn investor goodwill and confidence. This paper aimed at establishing the effect of corporate governance practices on financial performance of water companies under Lake Victoria South Water Services Board for the period 2012-2015. The following objectives guided the study: To assess the effect of board composition on the financial performance; to analyse the effect of board size on the financial performance; and to investigate the effect of financial disclosure on the financial performance. The study was underpinned by the following theories: transaction cost theory, stakeholder theory, agency theory and stewardship theory. Causal study design and a census was preferred since the number of water companies in the nine urban based water service providers within the Lake Victoria South Water Services Board was few. Data was collected using questionnaires conveyed to the respondents through drop and pick technique and was analyzed through descriptive and inferential statistics. Regression analysis aided in the establishment of the relationship and variation between the study variables, and results presented in tables. The study established that at 95% confidence level, there was a significant and positive relationship between board composition and financial performance. Furthermore, there was a significant and positive relationship between board size and financial performance at 95% confidence level. Also, there is a significant and positive association between financial disclosure and financial performance at 95% confidence level. The study recommended that water companies in Kenya should carefully constitute their boards, they should carefully consider the right size of their boards that will steer them to the realization of objectives while meeting the needs of various stakeholders, and they must ensure that their financial disclosure is done effectively to attract confidence of the investors, which in turn increase the capital base that lead to stabilized operations and performance of the firms