Journal of Economics and Financial Analysis, 4 (1), pp. 79-97, [2020]
URI: https://ojs.tripaledu.com/jefa/article/view/54/66

Does Corporate Governance Mechanisms Matter in Explaining Risk Management? Evidence from Non-Financial Kenyan Listed Firms


University of Kigali, Rwanda


DOI: http://dx.doi.org/10.1991/jefa.v4i1.a33

Abstract

The study aims to examine the relationship between corporate governance and risk management in Kenyan non-financial companies. It samples 41 listed non-financial firms in Kenya for the period of 2010-2017. Utilising binary logistic regression analysis technique, the study finds out that board independence and CEO tenure have negative and significant effects on risk management at 1% statistical significance level; while board financial expertise has a positive and significant effect on risk management 5% statistical significance level.
The study concludes that the independence of board members is detrimental to hedging activities. Long-tenured CEOs are less likely to use financial derivatives tools to hedge risks while financially knowledgeable boards have a better understanding of the sophisticated financial tools involved in risk management mechanisms. The study recommends the reduction of board members' independence and CEO tenure in order to increase hedging activities. The board members must have financial expertise, so that they can ascertain risks which are valuable to shareholders.

Keywords

Board Independence; CEO Tenure; Corporate Governance; Risk Management; Agency Theory.

JEL Classification

G20, G30, G32.

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