Abstract
Corporate governance (CG) promotes accountability, transparency and responsible management, which is essential for firm performance and sustainability. Despite the reforms made to CG codes, the effect of CG on firm performance in sub-Saharan Africa remains inconclusive. The study determined the relationship between CG and firm performance amongst publicly listed companies in South Africa (SA) and Kenya between 2017 and 2023. Data was obtained from the EquityRT database and company reports. A quantitative research design was employed. A corporate governance index (CGI) was built based on four CG categories, namely board characteristics, disclosure and transparency, risk management and shareholders’ rights. Firm performance was represented by Tobin’s Q as well as Return on Assets (ROA), and panel data analytical techniques models were applied.
The results revealed a consistently negative but statistically significant relationship between CG and Tobin’s Q in both SA and Kenya. The results indicated that high governance scores are not always rewarded by the market. The relationship between CG and ROA was statistically insignificant in both countries; however, the relationship was negative in SA and positive in Kenya. The results indicate that even though the firms practise CG, it may be more compliance-oriented than performance-enhancing. It is recommended that the boards and management of companies focus on CG practices that enhance firm performance, rather than just compliance. Furthermore, there is a need to adopt the CG codes according to the realities of the institutions instead of adopting global practices without checking their actual fit in the local situation in SA and Kenya.