MIDLANDS STATE UNIVERSITY

FACULTY OF COMMERCE

AN ANALYSIS OFCORPORATE GOVERNANCE ON FIRM

PERFORMANCE IN TOURISM SECTOR - CASE STUDY OF A
COMPANY LISTED ON THE ZIMBABWE STOCK
EXCHANGE (2013-2018)

BY

MOREBLESSING MASHAVA ( R14940G )

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 CONTENT.
CHAPTER ONE..............................................................................................................1
1.0Introduction............................................................................................................1
1.1Background to the Study.........................................................................................1
1.2 Statement of the Problem.....................................................................................3
1.3 Main Topic.............................................................................................................3
1.4 Research questions...............................................................................................3
1.5 Research Objectives...............................................................................................4
1.6 Significance of the Study.......................................................................................4
1.7 Assumptions..........................................................................................................4
1.8 Delimitation...........................................................................................................5
1.9 Conceptual Framework.........................................................................................5
1.8 Limitations.............................................................................................................6
1.9 Definitions of Terms..............................................................................................6
1.10 Chapter Summary................................................................................................6
CHAPTER TWO.............................................................................................................7
LITERATURE REVIEW...................................................................................................7
2 Introduction..............................................................................................................7
2.1 Theoretical Review................................................................................................7
2.1.1 Agency theory............................................................................................7
2.1.2 Stewardship theory...................................................................................8
2.1.3 Resource dependence................................................................................9
2.1.4 Class hegemony.......................................................................................10
2.2 Empirical Studies.................................................................................................10
2.2.1 Firm performance.............................................................................................10
2.2.2 Importance of firm performance..................................................................10
2.2.1.1 Shareholder value.................................................................................10
2.2.1.2 Creates employment.............................................................................11
2.2.1.3 Revenue for government......................................................................11
2.2.1.4 International trade................................................................................11
2.2.4Determinants of Firm Performance...............................................................12
2.2.4.1 Corporate governance...........................................................................12

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 2.2.4.1.1 Board size...........................................................................................13
2.2.4.1.2 Board Independence..........................................................................16
2.2.4.1.3 Concentrated ownership....................................................................19
2.2.4.1.4 Audit Committee Independence........................................................22
2.2.5 Chapter Summary.............................................................................................25
CHAPTER THREE.........................................................................................................26
RESEARCH METHODOLOGY.......................................................................................26
3.1 Introduction.........................................................................................................26
3.2 Research..............................................................................................................26
3.2.1 Research Philosophy.....................................................................................26
3.2.2 Research Design............................................................................................26
3.2.2.1 Descriptive research approach..................................................................27
3.2.3 Research Population.....................................................................................27
3.2.4 Sample Size...................................................................................................28
3.2.5 Data Collection Method................................................................................29
3.2.6 Data Collection Instrument...........................................................................30
3.2.6.1 Questionnaires...........................................................................................30
3.2.6.1.1 Open ended questions............................................................................30
3.2.6.1.2 Merits of open ended questions.............................................................30
3.2.6.1.3 Demerits of open ended questions.........................................................31
3.2.6.2 Closed ended questions.............................................................................31
3.2.6.2.1 Merits of closed ended questions...........................................................31
3.2.6.2.2 Demerits of closed ended questions.......................................................31
3.2.6.3 Likert scale questions.................................................................................32
3.2.6.3.1 Merits likert scale questions....................................................................32
3.2.6.3.2 Demerits likert scale questions...............................................................32
3.2.7 Data Validity and Reliability..........................................................................33
3.2.8 Ethical consideration.....................................................................................33
3.2.9 Data Analysis Method...................................................................................34
3.2.10 Data Presentation.......................................................................................35
3.4 Chapter Summary................................................................................................35
CHAPTER FOUR....................................................................................................36
DATA ANALYSIS FINDINGS AND DISCUSSION............................................36
4.0 Introduction.....................................................................................................36

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4.1 Response Rate..................................................................................................36
4.2.1 Gender of Respondents............................................................................37
4.2.2 Age of Respondents..................................................................................37
4.2.3 Highest Qualification Attained.................................................................38
4.2.4 Position Held in the Organization.................................................................39
4.2.5 Area of Specialty...........................................................................................40
4.2.6 Work Experience...........................................................................................41
4.3 Tests of Normality of Data...............................................................................42
4.4 Reliability Test.................................................................................................43
4.5 Relationship between board size and firm performance...................................44
4.5.1 Descriptive Analysis................................................................................44
4.6.2 The Relationship between Board size and Firm Performance.............44
4.6.2.1 Correlation Analysis.............................................................................44
4.6.2.2 Regression analysis...............................................................................45
4.7 Board Independence and Firm Performance....................................................45
4.7.1 Descriptive Analysis................................................................................45
4.7.2 The Relationship between Board Independence and firm performance.....46
4.7.2.1 Correlation Analysis............................................................................46
4.7.2.2 Regression analysis...............................................................................47
4.8 Concentrated ownership and firm performance................................................47
4.8.1 Descriptive Analysis................................................................................47
4.8.2 The Relationship between Concetrated Ownership and Firm
Performance.....................................................................................................48
4.8.2.1 Correlation Analysis.............................................................................48
4.8.2.2 Regression Analysis..............................................................................48
4.9 Audit committee independence and firm performance.....................................48
4.9.1 Descriptive Analysis...................................................................................48
4.9.2 Relationship between Audit Committee Independence and Firm
Performance.....................................................................................................49
4.9.2.1 Correlation Analysis.............................................................................49
4.9.2.1 Regression Analysis..............................................................................50
4.10 Chapter Summary...........................................................................................50
5.1 Introduction......................................................................................................51
5.2 Achievement of Research Aim and Objectives................................................51
5.3 Conclusion.......................................................................................................54

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 CHAPTER ONE

1.0Introduction

The chapter is going to dwell on background to the study, statement of the problem, research

objectives, research questions, significance of the study. Furthermore, the chapter discusses

delimitation, conceptual framework, limitations, definitions of key terms and conclusion for

the chapter

1.1Background to the Study

The last two decades, the world over has faced challenges involving corporate scandals as a

result of corporate governance deficiency. These scandals involve abuse of office by

authoritative persons,inside dealing, double dealing and unscrupulousness behaviour

(Zavahera and Ndoda, 2014).Many countries and researchers have rerouted their

consciousness to company governance (Maunganidze and Ncube, 2014). The way companies

are administered and supervised is alluded as corporate governance (Cadbury, 1992). In

support of Cadbury (1992), Organisation for Economic Co-operation and Development

(OECD) (2004) elucidated corporate governance as a way company aspirations are laid,

computed and realized via set down framework.

Crowther and Seifi (2017) stated that the intertwine of stakeholders’ (equity holders,

customers, government and suppliers) esteem, ideology, principles, conviction and beliefs

determines the prosperousness of corporate governance. Solomon and Solomon (2014)

posited that the prosperity of a company rest on its cornerstone which encompass of corporate

governance variables (audit committee indepence, board size, concentrated ownership and

board independence).

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Questionable resolutions, fraud, misuse of office by high powered company stewards and

fraudulence are the main roots of corporate misconducts and crumple in Zimbabwe

(www.unicef.org/about/annualreport/files/Zimbabwe_2017_COAR). Misdirection of

business wealth by company chiefs have resulted in companies such as National railways of

Zimbabwe (NRZ), Zimbabwe broadcastion corporation (ZBC) and Air Zimbabwe in battling

to pull through whilst others like Kingdom bank, Hunyani forest and David whitehead

collapsed due to substandard corporate governance (https://plexisstrategy.com/a-list-of-huge-

companies-that-failed-in-zimbabwe/ ; Machivenyika, 2014). United Kingdom (UK),United

states of America (USA) and South Africa (SA) have corporate governance codes UK

Cadbury Code (1992), Sarbanes Oxley Act and King IV Report on South Africa respectively

whilst Zimbabwe is still to come up with a corporate governance code (Sibanda, 2017). This

has contributed a lot to the poor performance of companies (Institute of Directors of

Zimbabwe, 2016).

The Acts of Reserve Bank (Chapter:22.15), Zimbabwe Stock Exchange and Companies Act

(Chapter: 24.03) are being used in Zimbabwe for guidance on corporate governance.

Institutes of Chartered Accountants (ICAZ), Directors of Zimbabwe (IoDZ) and Chartered

Secretaries Administration of Zimbabwe (ICSAZ) have joined hands in preaching the good

news of good corporate governance and professionalism among company executives and

managers through seminars and training (Ncube, 2018).

Deloitte and Touch (2018) mentioned that the Zimbabwe Leadership Forum and Standard

Association of Zimbabwe partnered with Institute of Directors of Zimbabwe (IoDZ) inorder

to foster the buildout of Zimbabwe corporate governance code. Companies in Zimbabwe will

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also be enlightened on the significance of commendatory corporate governance on company

performance by the expected governance code.

1.2 Statement of the Problem

This discourse has been instigated by organisational scandals in Zimbabwe owing to inferior

corporate governance on audit committee independence, board size, concentrated ownership

and board independence. Poor company performances have been attributed to bad corporate

governance. Research on the impact of corporate governance (audit committee independence,

board independence, board size and concentrated ownership) on firm performance of a hotel

is not a virgin territory but according to the reseacher’s best knowledge no such research has

been done in Zimbabwe for period 2013 to 2018.This researcher intends to fill this gap with

the aim of making recommendations based on the findings.

1.3 Main Topic

This research is on the impact of corporate governance on firm perfomance

1.4 Research questions

1.4.1 What is the relationship between board size and firm performance of a company listed

on the Zimbabwe Stock Exchange.

1.4.2 What is the effect of board independence on firm performance of a company listed on

the Zimbabwe Stock Exchange.

1.4.3 What is the relationship between concentrated ownership and firm performance of a

company listed on the Zimbabwe Stock Exchange.

1.4.4 What is the relationship between audit committee independence and firm performance

of a company listed on the Zimbabwe Stock Exchange.

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1.5 Research Objectives

1.5.1 To analyse the relationship between board size and firm performance of a company

listed on the Zimbabwe Stock Exchange.

1.5.2 To examine the relationship between board independence and firm performance of a

company listed on the Zimbabwe Stock Exchange.

1.5.3 To investigate the relationship between concentrated ownership and firm performance

of a company listed on the Zimbabwe Stock Exchange.

1.5.4 To scrutinise the relationship between audit committee independence and firm

performance of a company listed on the Zimbabwe Stock Exchange.

1.6 Significance of the Study

 The research is designed to assist different industry participants, stockholder, the

economy, consumers and a lot of mankind.

 If the industry contenders put down their hands on the recommendations and findings

of this research, it will assist them to shoot up profit margins, productivity and

financier trust.

1.7 Assumptions

 Data used for examination is authentic.

 Zimbabwe companies will make a killing from the outcomes of the research.

 Large board size increases firm performance.

1.8 Delimitation

The academic work will centre on a sole hotel listed on the stock exchange of Zimbabwe.

The study will focuse on year 2013 to 2018.

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1.9 Conceptual Framework

The conceptual model to be used by the researcher is exhibited below. It displays both the

independent and dependent variables

Figure 1

Conceptual Framework on the relationship between corporate governance and firm

performance

Corporate Governance
Variables

Board independence

Dependent Variable
Board size Control Variable
Firm performance
-Firm Size
Audit committee independence -Tobin Q
-Asset turnover
-Return on equity
-Industry effect
Concentrated ownership -Return on assets

1.8 Limitations
 Information to be used might be skewed and to conquer the stumbling block, case

studies, internet researches and wide range of books may be read.

 Some information on the companies’ annual financial reports is summarized and

verification may be very difficult however, this researcher will check on the

company’s websites for detailed information.

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1.9 Definitions of Terms

 Corporate governance is a systematic approach of supervising and administering the

business.

 Board size allude to the summation of executives and non-exective directors on the

board.

 Board independence make reference to a situation where non-executive directors

outnumber executive directors on the board. Larger part of non-executive director

must be independent of the company.

 Audit committee independence is where the number of independent directors on audit

committe is bulk than executive directors.

1.10 Chapter Summary

The chapter provides the background of the study, statement of the problem, research

objectives, research questions, significance of the study, delimitation and limitations of the

study. In the next chapter, existing literature on analysis of corporate governance on firm

performance will be reviewed.

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 CHAPTER TWO

LITERATURE REVIEW

2 Introduction

Literature on corporate governance namely audit committee independence, concentrated

ownership, board size, board independence and firm performance is going to be scrutinized in

this chapter.Corporate governance variables and firm performance will be defined in this

chapter. Conclusions and interpretations will also be made on the available literature.

2.1 Theoretical Review

2.1.1 Agency theory

According to the agency theory, managers have the blessings to know all the neat greeties of

the company that includes rewarding investment opportunities but they stay away from those

privileges which may result in disasterous moral hazard problems (Panda and Leepsa, 2018).

The information known by the capital providers and company managers is never the same.

Most of the time company managers have got lots of information about the company that

they do not divulge to owners resulting in information deformity. A study by Dawar (2014)

on the impact of capital structure on firm profitability in India showed that tiltering of

information between the steward and agent can be a thing of the past by putting in place

corporate governance structures such as audit committee and independent board.

Two people of either same age or colour will never have same traits therefore the principal

and agent are two different people resulting in different perspection of any situation.

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Incompatible goals are bound to arise between the agent and principle (Ncube, 2018).

Managers tend to make poisonous decisions or investments in contrast with the principal

interest.In Italy, Merendino and Melville (2019) studied the roles of board of directors with a

sample size of thirty Italy listed companies The results showed that a carrot is dangled by the

principal to the agent in the form of incentives as a way of reducing conflicts between

them.This theory will be considered on examining the relationship between firm

performance, board size, concentrated ownership, board independence and audit committee

independence.

2.1.2 Stewardship theory

Steward theory go against agency theory as it views human conduct inconsistently

contending that trustees are influenced to work in second to none interest of their capital

providers (owners) and expropriation of company wealth is not probable to crop up.In

support of the steward theory was Vu and Nguyen (2017) who assembled data from one

hundred and thirty seven listed firms on Singapore stock exchange between 2013 and 2016

financial period so as to explore the association between return on equity and corporate

governance. The results showed a positive relationship between trustees and capital

providers.

Another study by Chen (2014) examined the influence of Chief executive officer (CEO)

duality on organisation performance on European Union listed firms between year 2009 and

2013.The results advocated that supreme caretaker of the firm are its representatives and

outside independent directors are not vital since the former is unwaved by self interest. The

distinction between agency and steward theory is that the former’s focal point is good name,

inspiration and accomplishments ie intrinsic satisfaction and the latter refers to extrinsic

satisfaction (Singla, 2016)

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2.1.3 Resource dependence

Organizational and sociological theory led to the development of the resource dependence

perspective.In a competitive and general environment directors play a pivotal role in handling

external and internal forces.Appiadjei, Ampong and Nsiah (2017) studied the association

between board gender diversity and company profitability of thirty four Ghanian listed

companies from the period 2010 to 2014.The findings revealed that resources to be used in

the company are provided by the board members.

A study by Bhatt and Bhattacharya (2015) on the impact of board characteristics on firm

value by analysing factors like board size, board composition and board activity in Indian

information technology listed firms.Return on asset and equity were used as firm

performance proxies.The result of the study showed that board composition is based on the

ability to bring resources on the firm’s table.Company directors are the firm’s ambassadors ie

the way outsiders view the company improves and the uncertainty in business is reduced as a

result of the performance of company directors (Toivakka, 2014). Firm performance is

impacted by resource dependence through increasing the strong positive relationship between

external contingencies and the organisation, rejecting uncertain circumstances and decreasing

transaction cost.(Spaulding, Zhao, Haley and Homier, 2018).

2.1.4 Class hegemony

According to class hegemony, firm performance is affected by important factor called board

process. The relationship between firm performance and board of directors can be

investigated by an important variable called board process.Class hegemony indicates that the

company Chief executive officer (CEO) power, style and ownership concetration impact on

service and control of the company (Bhatt and Bhattacharya, 2015).

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2.2 Empirical Studies

2.2.1 Firm performance

In Malaysia, Jakpar, Johari and Myint (2019) studied the impact of corporate governance on

firm performance of thirty Bursa Malaysia listed companies between 2011 to 2015. They

defined firm performance as the final result of the company performance against set

standards eg sales growth, return on investment and profitability.

2.2.2 Importance of firm performance

2.2.1.1 Shareholder value

Getting money to start or fund a business is not an easy task, it involves a lot of hard working

and dedication. Shareholders are persons who put fortunes into business inorder to get it

successful and in exchange for shares. The shares received by the shareholders have a price

placed on them and that worth is called shareholder value. Premepeh & Odartei- Mills (2015)

noted that company share value is determined by the firm’s performance. Managers and

company executives are the company stewards, their responsibility embraces shareholder

value maximazation (Narang & Kaur, 2014)

2.2.1.2 Creates employment

The world over the story is the same of unemployment (Jang, 2018 ). Unemployment rate is

increasing by each hour and day. Every government should now aim to solve this worrisome

socioeconomic problem that has brought more harm than good (Jang, 2018). Organisation for

Economic Co-operation and Development (OECD) (2011) states that the global crisis in 2008

resulted in a recessionary phase which has resulted in many countries prioritizing the creation

of higher quality jobs. According to Dachs & Peters (2014), high quality jobs result in good

firm performance and innovation which normally tends to job creation.This was discovered

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when a research was carried out on how innovation results in employment growth and foreign

ownership of firms in Germany in year 2011 (Schumpeter, 2017)

2.2.1.3 Revenue for government

The government’s functions depend on the taxes received from tax payers.PAYE, Quarterly

Payment Deposits (QPD), income taxes, Capital Gains Tax, Excise duty among others are the

major taxes contributors for the country.In developing countries, firm growth is funded by tax

revenue but the opposite is true if corruption is too pervasive (Ferry &Chauvet, 2016). Firms

that perform well guarantee the government taxes.

2.2.1.4 International trade

Firms that perform well are easy to get funding from investors. Most foreign business

partnerships are as a result of good firm performance or potential to perform well (Tanaka,

2015). International trade earn the country foreign currency, creates employment , company

grows and better management practices are adopted (Tanaka, 2015; Ha & Tran,2017 )

Johl & Cooper (2015); Zabojnikova (2016) states that board independence, audit committee

independence, board size, and concentrated ownership are some of corporate governance

variables that determine firm performance.

2.2.4Determinants of Firm Performance

2.2.4.1 Corporate governance

It is not possible to finish the discussion on firm performance without either thinking or

discussing about its corporate governance ethics (Yang and Zhao, 2014 ). Different authors

have come up with different definations of corporate governance.In 1992, Cadbury stated that

the way companies are directed and controlled is called corporate governance. According to

King IV Report on Corporate Governance For South Africa (2016), corporate governance is

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the exercise of ethical and effective leadership by the governing body towards the

achievement of ethical culture, good performance, effective control and legitimacy.The

corporate governance ensures that ‘ the corporate is running in the right direction and being

run well (Tricker, 2015), whilst executive management is responsible for the smooth flow of

the organisation (Vu and Nguyen , 2017 )

Muller 2014 stated that an analysis of the definition reveals that the corporate governance

concept was developed as a result of the agency theory. Most of company frauds and failures

are caused by those who are entrusted to run them (Mohan and Chandramohan , 2018;

Nguyen and Nguyen , 2016) . This has left owners of companies with nothing to show for

their hard working. Corporate scandals have led to a lot of researches being carried out on

corporate governance (Mohan and Chandramohan, 2018 ). Corporate governance have a huge

role to play in reducing company frauds and failures (Vo and Nguyen, 2014; Krechovska and

Prochazkova, 2014) Generally, corporate governance has an important repercussion on firm

performance and its characteristics like board size, board independence, audit committee

independence and concentrated ownership

2.2.4.1.1 Board size

Corporate Governance For South Africa (2016); Cadbury report (1992) stated that board size

refers to the number of people that sit on the board of directors. They are called executive

and non-executive directors with the large proportion being from the latter. This was in

agreement with Cadbury report (1992), Martin and Herrero, 2018

Every registered company in Zimbabwe is manditorly required to have at least two directors,

with a minimum of one permanent resident in Zimbabwe (The Zimbabwe Company Act,

Chapter 24.03).The number of people who sit on the board is not specified in the Zimbabwe

Company’s Act (Chapter 24:03)

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 However, different companies and countries tend to differ on board sizes.In Ghana

companies listed on Ghanian Stock Exchange have an average of eight board members

(Akpey and Azembila, 2016). Companies listed on London stock exchange have no one size

fit for board sizes.The have an average of six members on board (Muller, 2014)

In Zimbabwe an average of 8.5 people sit on board (Zimbabwe stock exchange, 2018)

whilst in Saudi Arabia an average of nine members sit on board (Almoneef and Samontaray,

2019) and 5.6 sit on Vietnam board (Vo, 2014)

2.2.3.1.1.1The impact of board size on company performance.

In this day and and age company and employee networking play a major role on firm

performance (Chen, 2015).Company networking is done via board members, suppliers,

customers, banks, legal advisors among other things (Chen, 2015; Dzingai and Fakoya,

2017).

On investigating the impact of board characteristics on firm value in year 2015 on companies

listed on Malaysian stock exchange Johl, Kaur and Cooper discovered that company board

can either be large or small depending on the size of the organisation. In Bursa Malaysia, top

100 public listed companies between 2008 and 2012 showed that large board is very

important because it brings people from different backgrounds and networks together

resulting in good performance for the company (Zabri, Ahmah and Wah, 2015). Arora and

Sharma (2016) conducted a research on twenty industries in Indian manufacturing companies

on the impact of board size on firm performance and results showed that a lot of skills,

knowledge and experience are brought on board by large number of directors resulting in

pleasing decision making.

A lot of firms collapse and poorly perform as a result of company stewards who put their

interest ahead of the company (Hsu, Wu, 2014; Zalewska, 2014).In Pakistain manufacturing

sector, Javaid and Saboor (2015) conducted a research on the impact of corporate governance

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on financial performance on fifty eight companies listed on Karachi stock exchange over a

period of six years (2009 to 2013).The results showed that in order to protect the stockholders

and the company, a watchdog is put in place ie the board of directors.This will reduce

conflicts between company executives and share subscribers (Annuar and Rashid, 2015).

Some reseachers like Pillai and Al – Malkawi (2017) investigated the relationship between

corporate governance (board size, audit type and government shareholding) and firm

performance of three hundred and forty nine Gulf Cooperation Council countries listed on

the stock exchange between 2005 and 2012.Mode parameters were estimated using the

generalized least squares and the results show that poor firm performance is as a result of a

large number of directors on the board because decision making process tend to be long. Ali

(2016) studied the effect of board size on firm performance on one hunderd companies listed

on Pakistan and United State of America stock exchange between 2010 and 2015.The results

posited that large board is too costly in terms of directors fees and other incentives resulting

on a negative effect on firm performance.

On the other hand, Ali (2016) documented that smaller boards’ communication, decision

making and cordinaton is easier and faster than larger boards resulting in effective and

efficient firm performance. Also, Naushad and Malik (2015) on studying the impact of board

size on performance of Gulf Cooperation Council banking sector between 2012 and 2013

discovered that the monitoring of company executives is effective with a smaller board than a

larger one thereby reducing the serving of personal interest.

In addition, Bandu and Appiah (2017) in Ghana studied the effect of board size on return on

assets and Tobin q on one hundred and thirty seven companies listed on Ghana stock

exchange between 2008 and 2014.The results showed that senior managers can use their

influence to manipulate small board sizes.

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However, financial window dressing is a common activity among small board sizes because

they can easily influence each other (Chen, 2015; Boubaker, Derouiche and Nguyen, 2015).

Some researchers concurred and others contradicted on the relationship between firm

performance and board size.Johl, Kaur and Cooper, (2015) investigated the impact of board

characteristics and firm performance by examining some factors like board size, board

independence, board meeting and directors accounting expertise on firm accounting

performance using annual reports of seven hunderd public listed firms in Malaysia.The study

covered year 2019 only and ordinary least square regression method was used to analyse

data.Return on asset was used to measure board characterics and performance.Their research

outcome posited that firm performance and board size have a positive relationship.

In the same vein, Gupta and Sharma (2014) examined the impact of corporate governance

practices on firm performance by examining some factors like board structure and

unaffiliated directors in South Korean and Indian companies.The study covered a span of two

years running from 2005 to 2006.Return on equity (ROE) was used to measure performance

and board size.The findings revealed that board size has limited impact on financial

performance.

However some studies found contrary to the positive outcome.Mohan and S Chandramohan

(2018) shed light on factors like Chief executive officer (CEO) duality, board size and board

composition that determine firm performance using 30 firms listed on Bombay Stock

Exchange between 2007 to 2016.Ordinary least square regression was used to analyse the

data .The results of the study revealed a negative relationship between board size and firm

performance.

Lastly, Vu and Nguyen (2017) examined the relationship between board size and firm

performance of Singaporean listed companies within 2013 to 2016 using multiple regression

analysis.The proxies for financial performance were Tobin’s Q, Return on Assets and Return

15
on Equity. The results revealed an inverse relationship between board size and firm

performance.

Based on the above contradicting arguments, the researcher concludes that a research must

be carried out inorder to know the impact of board size on firm performance.

2.2.4.1.2 Board Independence

New York stock exchange (2002), The Cadbury report, (1992) stated that board

independence occurs when non-executive directors sitting on the board out number executive

directors and plenty of the former must be independent.

The Combined code (1992) however stipulates that a third at least of the board should be

non-executive directors.

The Company Act (Chapter 24:03; Sec 2 and 169) in Zimbabwe mentions of the director in

general only.The words executive and non-executive directors do not exist in the

Zimbabwean Company’s Act (Chapter 24:03) leaving no room for board independence.

However, The Combined Report (2003), The Cadbury Report (1992), define board

independence as the director who has no direct or indirect link with the company. According

to Dzingai and Fakoya (2017); Hsu and Wu (2014) board independence is measured as the

percentage of independent non-executive directors to total number of directors on the board.

2.2.3.1.2.1The impact of independent directors on the board performance

Outside directors and non executive directors were terms used interchange with independent

directors ( Fuzi, Halim and Julizaerma, 2015) . According to Organisation for Economic Co-

operation and Development (OECD) Principle of Corporate Governance ( 2004 ) , a lot of

company decision making is contributed by independent directors.Ali (2016) in his study on

the impact of board independence on firm’s financial performance on one hundred listed

16
companies on Pakistain Karachi and New York stock exchange during the period of 2010 to

2015 results postulated that when a board is independent better and uncompromised decisions

are taken resulting in reduced financial pressure.

Muller (2014) studied the roles of independent directors in one hundred companies listed on

the London Stock Exchange between 2010 and 2011. Econometric regression model was

used to investigate the impact of independent directors on firm’s performance and it was

found that the vast experience and expertise brought on board by external directors improve

ways of managing the firm. In Spain, a study by Martin and Herrero (2018) of eight two

companies listed on Spain Stock Exchange over the period of 2010 to 2015 showed that

company executives’ performance is normally judged on company’s financial results and

independent non- executive directors monitor them so that no doctoring of results will take

place. In support, Diaz and Diez (2017) studied the sample of two hundred and six enterprises

listed on Spain Stock Indexes at the end of the year 2011 and posited that unaffliliated

directors monitor company executives to ensure that financial statements reflect the true

picture of the organisation and at the same time protecting their reputation. The high

unemployment rate may promote nepotism during recruitment and promotion process of

company executives, in order to promote transparency during those crucial moments

independent directors chips in ( Wu and Li, 2015).Stewards of the company needs constant

monitoring by the independent directors otherwise they may end up serving their own interest

against the company ( Brandes, 2015; Larcker, 2014; Zalewska, 2014).

Vo and Nguyen ( 2014 ) postulated that majority of companies listed on the Vietnam Stock

Exchange between 2008 and 2012 showed that the company can capitalize on the proportion

of outside directors who can use their influence to acquire cheap external capital resulting in

reduced cost of capital. However, Priego and Merino (2016) discovered that a person cannot

17
make two masters happy at the same time, external directors who occupy many boards end up

being inefficient and incompetent due to high work loads.

In manufacturing sector, Gill, Bigger and Obradovich (2014) results of one hundred and

eighty nine manufacturing American companies on the New York Stock Exchange between

year 2009 and 2013 showed that cash conversion cycle is shortened by the presence of

outside directors on the board. However in Jordan, Rahahleh (2016) carried a study on the

relationship between cash conversion and corporate governance quality on two hundred and

ten companies listed on Amma Stock Exchange between 2009 to 2013. The results showed a

negative relationship between corporate governance quality and cash conversion cycle.

The study on NASDAQ-100 firms from the period 2010 to 2014 showed a positive

relationship between return on asset and independent directors on board (Rutledge,Karim

and Lu, 2016).Similarly, Ali (2016) found a positive relationship between Tobin Q and

independent directors.

Contrary to the positive results was Nguyen, Evans and Lu (2017) who found a negative

relationship between board independence and return on equity.Also of the same thought and

results was Yameen, Farhan and Tabash (2019), in India thirty nine Bombay Stock Exchange

listed hotels between 2013 to 2016 were examined.The ordinary least square regression

model was used to analyse the data.

In the same vein, Vintila (2015) examined the relationship between board independence and

firm value of sixty two companies listed on Burcharest stock exchange during the period of

2007 to 201.In the study, Tobin’s q was used as a proxy for firm value.The results of the

study showed a curvilinear relationship between board independence and firm value.

Based on the above contradicting arguments, the researcher concludes that the impact of

board independence on firm performance is not clear therefore a research must be conducted.
18
2.2.4.1.3 Concentrated ownership

Concetrated ownership is where the big portion of company’s shares is held by few

shareholders (Konecny and Castek, 2016; ICSA, professional development,

2005).Shareholding starting from 6% or more is classified as block equity holder.This was

seconded by Kalezic (2015) on studying ownership and firm performance relationship on six

hundred Montenegro companies between 2004 and 2008. Villegas, Puig, Sanchez and

Gonzalez (2018) took a sample of five hundred and seventy nine firms registered on the

STOXX Europe 600 between 2002 and 2011 to investigate the connection between

ownership concentration and firm performance. The results highlighted that blockholders’

ownership arises where the highest number of shares lie in the hands of a few individuals. In

calculating concentrated ownership percentage, S Balagobei (2017) in Sri Lanka beverage

food and tobacco industry used the formular, the total number of shares owned by major

shareholders divided by total number of the shares.

2.2.3.1.3.1 The impact of concentrated ownership on firm performance

Saleh, Zahirdin and Octavicni (2017), studied in Indonesia the impact of ownership structure

on corporate performance in real and property sector between 2010 to 2015. In the study two

hundred and forty companies were put under observation and the results showed that conflict

of interest normally arises as a result of a split up between ownership and control. In order to

solve that problem, concentration ownership has been seen as a remedy (Saleh, Zahirdin and

Octaviani, 2017). A study of three hundred and thirty four Romania firms listed on the

Bucharest stock exchange for the financial year 2009 to 2011 showed that monitoring and

supervision of stewards by large equity holders results in an increase in investor and firm

performance (Vintila, Gherghina, Nedelescu, 2014).Concentrated ownership reduces

consultation time among shareholders resulting in speedy decision making. A small number

19
of shareholders means less variable expenses compared to multiple shareholders (Balagobei,

2017).

However, Vintila, Gherghina, Nedelescu, (2014) believes that information disclosure of the

company can be influenced by the concentrated equity holders as they play the directorship

role in the same company.This results in minority equity holders being prejudiced of their

right to full information ie information asymmetry (Mackek and Kubicek, 2018).This is in

agreement with Balagobei and Velnampy, (2017) who studied a sample of ten listed tobacco

and food beverage firms in Sri Lanka over the period of 2010 to 2015 for the relationship

between ownership structure and corporate governance.Pearson’s correlation analysis was

used to analyse secondary data used in the study and the results revealed that concentrated

ownership mostly results in low level information disclosure.Dominance of ownership

concentration negatively affects the monitoring function of company executives by

independent directors (Nguyen, Evans and Lu, 2017).

Balagobei (2017) examined the influence of concentrated ownership on firm’s profitability

using pearson’s correlation and regression analysis. The sample comprised of ten listed

tobacco and beverage companies in Sri Lanka and results showed that firm performance

decreases as managers’ shareholding increases as more energy will be put on serving

personal interest.

A number of researchers undertook studies aimed at providing evidence on the relationship

between concentrated ownership and firm performance. Using the feasible generalized least

squares, Vo and Nguyen (2014) examined the impact of concentrated ownership on firm

performance by taking into account the dataset of one hundred and seventy seven Vietnam

listed companies between 2008 and 2012. Performance was measured by Z-score Altman,

Return on Equity, Tobin Q, and Return on Assets.The results showed a positive result

between concentrated ownership and profitability. Also Buallay, Hamdan and Zureigat

20
(2017) in Saudi Arabia found a positive result between ownership of the largest shareholders

and profitability using a sample of one hundred and sixty one listed companies on Saudi

Arabia stock exchange between 2012 to 2014.

Moving to Bahraini, Khamis (2015) examined the relationship between firm value and

ownership structure on a sample of forty two Bahraini listed companies between 2007 and

2011. They measured their profitability with Tobin q and a negative relationship between

institutional ownership and firm performance was obtained. Similarly, in Czech Republic, a

linear regression modeol was used to analyse data from over five thousand enterprises

between 2010 and 2012.The results showed that ownership concentration has a weak but

significant negative relationship with return on assets (Konecny and Castek, 2016)

In contrast, Balmeier and Czarnitzki (2017) carried a research on twenty eight firms that

operate in non-Europe union countries and less developed institutional systems in Eastern and

Central Europe over the period of 2002 to 2006. The study measured the relationship between

ownership concentration and firm performance and U-shaped relationship was obtained.

Based on the above contradicting arguments, the researcher concludes that the impact of

concentrated ownership on firm performance is not clear therefore a research must be

conducted.

2.2.4.1.4 Audit Committee Independence

When an audit committee’s outside directors out number inside directors, the committee is

said to be independent (Alqatamin, 2018;Akpey and Azembila, 2016).In order to achieve

independence on audit committee board, Cadbury (1992), The King 11 Report (2002) and

The Combined code (2003) recommended at least three non-executive directors and bulk of

them to be independent. This was in agreement with the Sarbanes-Oxley Act (2002) who

recommded that all members of the audit committee must have no link with the

21
company.This means that the directors must not be a company supplier, not related to any

stockholder or company executive and not been employed by the company within the last

three years, this results in high quality financial reporting (Nekhili, 2016). King 11 Report,

(2002) and Cadbury, (1992) recommends the board chairman of the audit committee to be

an independent director and also the inclusion of an accounting and finance professional on

the board. The involvement of the CEO in selecting the audit committee must not be tolerated

at all as this will compromise their independence (Alqatamin, 2018). Audit committee

independence is calculated by the total number of independent non-executives directors on

the board to total number of directors (Nekhili, 2015; Alqatamin, 2018).

2.2.3.1.4.1 The impact of audit committee independence on firm performance

Kallamu and Saat (2015) examined the impact of audit committee independence on firm

profitability on eight hundred and twenty two companies listed on Bursa Malaysia stock

exchange for the period of 2007 to 2011.The results showed that audit committee

independence allows better monitoring of top management without feeling any pressure from

them resulting in high quality financial reporting (Nekhili, 2015) and efficiency in

company’s investments (Salin and Nawawi, 2018). An independent view of the financial

reporting is carried by an independent audit committee and ensures that managers do not

dominate the committee leading to a higher audit quality (Kallamu and Saat, 2015). In order

to protect the shareholders (Asmuni, 2015) and their reputation, independent directors on the

audit committee ensure that quality and integrity in financial reporting exercise is maintained

in the organisation (DeFond and Zhang, 2014). Investors have confidence in audit

committees with high number of independent directors, as they do thorough checks on the

financial reporting and performance of the company resulting in them injecting lots of capital

into the business.

22
In Jordan, a study by Alqatamin (2018) on the effect of audit committee on return on assets

on one hundred and sixty five companies listed on Amman stock exchange over three years

(from 2014-2016) was carried out. The results however showed that audit committee

independence will be compromised where owner of the company or chief executive officer

becomes part of the committee resulting in wrong judgement being passed on the

performance of the company. In addition, Kallamu and Saat (2015) indicated that other

directors will be intimidated by the presence of either the chief executive officer or

shareholder on board. A decrease in performance will emanate from an increase in external

directors meaning that the higher the number of outside directors the higher the directors fees

which will then have a negative impact on the firm performance. Most independent directors

sit on more than one board resulting in the them having a tight work schedule. This will then

affect their monitoring and supervision of company executives, resulting in them pursuing

their personal interest (Zalewska, 2014). An increase in outside directors mean decision

making process may take long due to consultations resulting in shrinkage of company

performance especially in critical issues (Boubaker, Derouiche and Nguyen, 2015). Most of

organisational financial scams take place where audit committees lack (Wahab, 2014) or have

minimal number of independent audit members thereby impacting negatively the firm

performance (Mamun, 2014).

Some researchers concurred and others contradicted on the relationship between audit

committee independence and firm performance. The study on seventy five companies listed

on Malaysia stock exchange from fiscal year 2008 to 2010 showed a positive relationship

between audit committee independence and firm performance while audit quality is

negatively associated (A Al-Mamun and Q Yasser, 2014). Also, Oroud (2019) carried a study

on fifty one listed industrial firms on Amman stock exchange from 2013 to 2017 on the

relationship between audit committee independence and firm’s profitability.The results of the

23
study revealed a positive impact of audit committee independence, return on investment and

equity.

Another stream of literature in Thailand by Detthamrong, Chancharat and Vithessonthi

(2017) during the years from 2001 to 2014, the study measured the relationship between firm

performance and audit committee on four hundred and ninety three non financial firms .From

the findings, it showed a negative relationship between return on equity and audit committee

independence.

Nevertheless, A Salin, A Nawawi and Nor (2018) found no relationship on their study of the

impact of audit committee independence on firm’s investment level. In their study, two

hundred Malaysian stock exchange listed companies were selected and analysed by binomial

logistic regression for four years (2009-2011). The findings found no relationship between

firm’s investment level and audit committee independence.In Ghana, Akpey and Azembila

(2016) sampled data from thirty six firms listed on Ghana stock exchange during the year

2015 to investigate the effect of audit committee independence on firm value.The results

revealed no effect at all.

Based on the above contradicting arguments, the researcher concludes that the impact of

audit committee independence on firm performance is not clear therefore a research must be

conducted.

2.2.5 Chapter Summary

The chapter explored literature on impact of corporate governance on firm performance. The

chapter covers the discussion on corporate governance variables and firm performance. The

next chapter will look into methodology

24
CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

This chapter discusses definitions of various variables, sampling techniques and sources of

data analysis.

3.2 Research

3.2.1 Research Philosophy

The researcher adopted a critical realism approach together with positivism which showed the

actual position of the company’s performance and not what the stakeholder thought.

3.2.2 Research Design

A mixed research design was used to collect and analyse data by the researcher.

3.2.2.1 Qualitative research approach

Mixed research approach is a combination of quantitative and qualitative research

approaches. Quantitative research looks at measurable and numerical relationships whilst

qualitative approach is interested in concepts, opinions and characteristics descriptions. The

researcher applied a survey method of which research participants answered questions

administered through questionnares. Secondary data was downloaded from the company’s

annual financial reports on the Zimbabwe stock exchange website

Justification of the Mixed Research Design

25
Lots of data was gathered through mixed research approach resulting in easy decision making

and data analysis. Mixed approach offered a statistical analysis along with observations

which made the research more complete. A true and more reliable picture of the situation was

provided by the mixed research approach. Mixed approach was less costly and saved time as

more data was gathered in a short space of time.

3.2.3 Research Population

The research’s population is one company out of sixty three listed companies on the

Zimbabwe stock exchange from 2014 to 2018. Target population is the entire group of object

or individuals that are of paramount importance to the research, where conclusions will be

based.Target population of this research were the executive and non-executive directors,

independent, non-executive directors, chief executive officer audit committee members and

concentrated shareholders of the company.

The following table depicts the target population used in the research.

Table 3:0 Target Population

Population Type Target
Population
Non-executive Directors 6
Executive Directors 12
Chief Executive Officer 1
Audit Commitee Independence 4
Concentrated owners 12
Others 165
TOTAL 200

3.2.4 Sample Size

Ncube (2018) defined sample size as the number of people who take part in the research.

These people provide data which will be used to make conclusion on the research. Suitable

26
sample size for this study includes, 6 Non-executive directors, 12 Executive directors, 1 Chief

executive director, 4 Independent Audit Committee members and 12 Concentrated

shareholders. The other one hundred and sixty five personnel include office and rest rooms

cleaners, canteen employees, groundsmen, messengers and other lower grades personnel who

are either unaware or ignorant of the topic at hand. The researcher distributed questionnares

to this group of people as they are excluded from the sample size.

The below diagram illustrates the sample size used in this research

Population Type Population Sample Size

Non-executive Directors 6
Executive Directors 12
Chief Executive Officer 1
Audit Committe Independence 4
Concentrated ownership 12
TOTAL 35

Sampling method is used to pick the sample wanted for the research where the entire

population conclusion can be drawn.

The researcher used convenient sampling to select the target population.Convenient

sampling prioritize the convenience of the researcher. Units of the research are selected based

on the convenience of the researcher. The method is less expensive as results are obtained

quickly.

3.2.5 Data Collection Method

Chiwona (2016) described sources of data as primary and secondary data.

Primary Data
Primary data is data that is not yet processed i.e. raw information. It is gathered from the

source using different ways like observation, questionnaires and interviews (Cottrell,

2014).The evidence is invented and used for non other than the first time by the scholar. The

27
information provided by primary source is untempered, in crude form, reliable and unbiased

since it will be coming from the horse’s mouth or source.Tyoka (2017) stated that the data

obtained is tailored to address the tabled research problem.

The researcher did not want to waste time and collected primary data for the research. The

reason was because of its originality, time saving and reliability.

Secondary Data
Data collected in the past and published is called secondary data. The data existed and was

used for other purposes by the originator before being used by the researcher as a secondary

user. It is obtained from websites, books, journals, reports and company’s internal records.

Information used in other researches is secondary data as it would have been generated and

used by the originator. Acquisition of secondary data is easier and less expensive to acquire

compared to primary data.

The reliability of secondary data is very questionable because verification may be difficult or

next to impossible.Secondary data may not be specifically meant for the research being used

after the problem identified results in failure to solve the problem.

Corporate governance variables (board independence, board size, audit committee

independence and concentrated ownership) and firm performance (ROE, ROA and Tobin Q)

are data sets required for this study.Secondary data source was used in the research for

second option of the primary data going to be used in the research ie the company’s financial

reports.Tobin q , return on asset, and return on equity are going to be used to calculate firm

value (performance) using the company’s information from the Zimbabwe stock exchange.

28
3.2.6 Data Collection Instrument

In order to gather data looked-for, diverse data gathering gadgets were used. These included

questionnaires, likert scale and internet (Regai 2018). These devices supported in gathering

information which was either available or unavailable on the internet. (Ruguwa 2018).

3.2.6.1 Questionnaires

Questionnaires are often used where in depth information about a state of affairs is required

from the source. Questions are placed in tabular arrangement then the respondents are obliged

to give their response (Farrel 2016). A good questionnaire results in a researcher

accumulating as abundant information as imaginable in a quick space of time from a set of

individuals. The reliability of the data grouped can with no trouble be confirmed as the

identical enquiries will be on the questionnaires disseminated to dissimilar respondents

(Haiyinig, 2014). Questionnaires involve open and closed ended questions.

3.2.6.1.1 Open ended questions

According to Ruguwa (2018) open ended questions are questions which give the responded

room to express himself and be detailed on the asked questions. They exclude the research’s

29
influence in answering them. Suggested solutions to the questionnaire is next to zero as they

give the respondent room to be himself when answering the questions.

3.2.6.1.2 Merits of open ended questions

Ruguwa (2018) highlighted that qualitative information is gathered through opend ended

questions as the responded is given liberty room to express himself without any limitations.

Open ended questions provide reliable data as the respondents will be speaking from the heart

and without knowing the expected responds. The unanticipated responses from the

respondents improve the research (Maliki, 2014).

3.2.6.1.3 Demerits of open ended questions

Maliki (2014) stated that open ended questions results in dimensional responses being

gathered from respondents as a result of dissimilar circumstances thus making it tough to

analyze the data. Irrevant data can be gathered via open ended questions which is

uneconomical of restricted resources.

3.2.6.2 Closed ended questions

Closed ended questions are uniform questions that require standard responses provided by

closed ended questionnaires.

3.2.6.2.1 Merits of closed ended questions

Rahi (2017) stated that closed ended questions captures only important and relevant

information. Questions are direct to the point resulting in time saving in gathering the

information. Evaluation of group’s response is made easier due to the uniformity of

questions. Less time is needed to complete the questionnaire which will not frustrate the

respondent (Maliki, 2014). Closed ended questions results in easy and fast response which

enables the scrutiny, clarification and deduction of the research easy.

30
3.2.6.2.2 Demerits of closed ended questions

Closed ended questions do not give the respondent the liberty to express himself as they

suggest ideas to the respondent. The questions have a habit of leading to an answer resulting

in a influenced output. Respondents with no idea or acquaintance around the theme can still

give a response (Rahi 2017)..

The researcher was motivated to use closed ended questionnaires in order to obtain the

relevant information is the shortest time possible.

3.2.6.3 Likert scale questions

Opinions, beliefs and attitudes are psychometrically measured. A likert scale can be odd

numbered or even numbered. It can be a four point, five point and six point. Markusix, (2014)

stated that neutrality or indecision are option availed by an odd numbered scale whilst an

even numbered scale gives the respondent an opportunity to choose. The responses are

mathematically analysed. Undecided and neutral feelings of participants are accommodated

under likert scale questions (Zimidzi, 2017).

3.2.6.3.1 Merits likert scale questions

Completion of likert scale questions by respondents is not water tight which results in a swift

response. Responses are easily measurable in addition to subjective computation of some

measured analysis. Likert scale questions are easy to hypothesis, well-organized, speedy and

economical to assemble data (Zimidzi, 2017).

3.2.6.3.2 Demerits likert scale questions

Kavhai (2015) stated that the extreme options on the scale intimidate people due to the

negative connotation involved with furthest options. The true attitude of the respondent is not

31
measured thereby resulting in a biased result.The researcher used the likert scale to gather

data.

The Likert Scale

Item Strongly Agree Uncertain Disagree Strongly

Agree Disagree
Points 5 4 3 2 1
Source: Tyoka (2017)

3.2.7 Data Validity and Reliability

In a bid to ensure the validity of the research instruments of the study, a reliability test was

conducted on all the constructs of the study with the use of the Cronbach’s Coefficient Alpha

as shown in table 4.3 below.

Reliability Statistics

Cronbach's Alpha No of Items

.798 26

Table 4.4: Reliability Test

Source: Primary Data

With the use of the Cronbach’s Coefficient Alpha test on variables under study, a coefficient

of .798. The results are congruent with what was found by Saunders, Lewis and Thornhill

(2009) and Christensen, Johnson and Turner (2011) who pointed out that any scale above 0.7

shows that the reliability is satisfactory. With regards to these recommendations therefore, the

statements under the variables of the study were concluded to be provide enough internal

consistency, therefore, reliable for data analysis as well as generalisation of the population.

32
3.2.8 Ethical consideration

The researcher firstly sort authority and blessings from Meikles to administer questionnaires

to the intended personnel. Once permission was granted, the researcher proceeded with her

work bearing in mind that a human being is a very sensitive creature. It can easily get

provoked and upset. In order to eliminate things which normally upset and cause provocation

to respondents the researcher took into consideration some ethical principles which included

among them anonymity of participants, voluntary participation, guarantee of privacy and

confidentiality of the respondents.

In order to upheld the principle of anonymity, the researcher made it sure that the

respondents’ names did not appear anywhere on research documents. Pseudonyms and codes

were used to identify individuals. Questionnares did not ask participants their names as this

would frighten and chase them away.

Participants were also required to voluntarily consent to take part in the research.No

minimum or maximum force, intimidation, blackmailing or any tactic was used to force the

participant to take part in the research.The participants completed the consent form stating

their unforced willingness to take part in the research.

The researcher guaranted the participants privacy and confidential on their input and identity.

Participants got assurance from the researcher that their input contribution would be private,

confidential and no other third part will lay his hands on the information.

. Ethical principles must be adhered to otherwise failure to stick to them will lead to

psychological harm to the participants. Their jobs and safety will also be compromised if for

example information provided by them is leaked intentionally or unintentionally.

33
3.2.9 Data Analysis Method

The researcher will gather huge and unrecognisable raw data which must be worked on

inorder to have a meaning and interpretation at the end of the day (Maliki, 2014). The

process will involve categorization and summarization of the submitted data after which

Microsoft excel an an integrated statistics package called stata will used to analyse data.

Annual reports from financial period 2014 to 2018 will be downloaded from the Zimbabwe

stock exchange and data compiled on excel sheet. Data compiled on excel will be analysed

using an integrated statistics package called strata.

3.2.10 Data Presentation

Once data has been analysed by stata and excel, information will be interpreted using graphs,

pie charts, bar graphs and tables.This will make it easier to understand for users of this

research

3.4 Chapter Summary

This chapter provides a clear picture on the source of data, collection method, target

population, sample size, statistical method used to analyse data and definitions of explanatory

variables. The next chapter reports on the results and findings of the study.

34
CHAPTER FOUR

DATA ANALYSIS FINDINGS AND DISCUSSION

4.0 Introduction
This chapter deals with the presentation, interpretation and analysis of data from the data

collected from the respondents. The chapter also presents the results on the demographic

information prior as well as descriptive analysis. The chapter also gives the summary of the

results from the descriptive analysis up to the summary.

4.1 Response Rate

The number of questionnaires, administered to the respondents of the study was 35. A total of

35 questionnaires were properly filled and returned from the personell who are charged with

corporate governance of entiries. A successful response rate of 100% was attained from the

study. According to Mungenda and Mungenda (2003), a 50% and above response rate is

sufficient for data analysis. Babbie (2004) also points out that response rate of 50% are

acceptable for analysis and publication as 60% is good and 70% is excellent. The response

rate of the study was excellent. Table 4.1 below gives results on the response rate:

Table 4.1: Response Rate

Sample Sent

Sent 35

Returned 35

Response rate 100%

Source Primary Data 2019

4.2 Demographic Information
This section gives the demographic characteristics relating to the gender, age, position in the

organization, highest qualification attained, area of specialty, average work experience of the

respondents under study. Below is a presentation of the demographic information.

35
4.2.1 Gender of Respondents
The respondents were initially asked to indicate their gender. Their responses are shown in
Figure 4.1 below:

Gender of Respondents

42%
male
female
58%

Figure 4.1: Gender of Respondents

Source Primary Data 2019
From Figure 4.1 above the majority (58%) of the respondents were males and 42% were

females. These findings imply that corporate governance systems may be dominated by male.

4.2.2 Age of Respondents

The second question posed to the respondents asked them to indication their age. Figure 4.2

below shows results of age of respondents that participated in this research.

36
Figure 4.2: Age Range of Respondents
Source Primary Data 2019
The results show that 68% were aged between 40-65 years, 25% were aged between 30-40

years, 7% were aged between 20-30 years. There are most represented age groups is the 40

-65-year-old, which implies that the represented age was mature enough to understand the

phenomena under investigation as well as providing accurate responses.

4.2.3 Highest Qualification Attained

The respondents of the study were then asked of the highest qualification they had attained.

Figure 4.3 below gives the results:

37
Figure 4.3: Highest Qualification Attained
Source Primary Data 2019

From figure 4.3, 50% of the population are masters’ degree holders, 42% of the population

are first degree holders, 8% of the population of the study are PhD holders. The findings of

the study imply that most of the respondents had high and decent educational level and this

highly contributed to accurate responses.

4.2.4 Position Held in the Organization

The respondents of the study were again asked of the position they held in the organizations

they worked for and results are indicated in Figure 4.4 below:

38
Figure 4.4: Position Held in the Organisation
Source Primary Data 2019
From figure 4.4, 75% of the population of the study held managerial positions, 25% of the

population of the study were managers. The positions that were held by the respondents of

the study enhance the validity and accuracy of the findings as they were versed with the

phenomena under investigation.

4.2.5 Area of Specialty

Upon getting information on the position they held, the respondents were further asked of

their area of specialty in the organization. Their responses are shown in figure 4.5 below:

39
Figure 4.5: Organisations’ Area of Expertise
Source Primary Data 2019
From the presentation in Figure 4.5 above, 84% of the population of the study specialized in

other areas such compliance and governance, 8% specialized in financial management, while

the remaining 8% are from procurement and accounting. The area of the specialty in with

regard to compliance and governance from the respondents of the study strongly shows that

they understand the phenomena under investigation and were the best candidates for data

collection. This therefore implies that the responses generated from the data collection are

highly accurate.

4.2.6 Work Experience

After getting relevant demographic information which reiterated the importance of the

respondents to the study, the respondents were finally asked of their average work

experience. Figure 4.6 below provides the results:

40
Figure 4.6: Average Work Experience
Source Primary Data 2019

From the presentation in Figure 4.6 above, 33% of the population had 10-20-year experience,

42% of the population of the study had 5-10-year experience in the organization, 8% of the

population of the study had below 3-year experience and 8% of the population of the study

had 3-5year experience, and 9% had above 20 years in experience. The findings imply that

the respondents of the study had worked in corporate governance related issues for long

enough and had knowledge about the issues that the study was investigating.

4.3 Tests of Normality of Data

Table 4.7.1 below gives results on the tests of normality of data:

Table 4.3.1: Tests of normality of data

Kolmogorov-Smirnova Shapiro-Wik
Independent Variable Statistic Df Sig. Statistic df Sig.
Board Size .082 12 .142 .972 12 .332
Board Independence .204 12 .238 .976 12 .548
Concentrated Ownership .315 12 .091 .815 12 .157
Audit Committee Independence .421 12 .179 .873 12 .235

41
a-Lilliefors Significance correlation
Source: Primary Data (2019

The sample size of the study was 35, which is less than 2000, and hence the study made use

of the Shapiro Wilk test to test for normality. The p value was as shown in the table was more

than 0.05 and hence the data was assumed to be normally distributed and hence the researcher

used the pearson correlation to test the relationship among the variables under study.

4.4 Reliability Test

In a bid to ensure the validity of the research instruments of the study, a reliability test was

conducted on all the constructs of the study with the use of the Cronbach’s Coefficient Alpha

as shown in table 4.3 below.

Reliability Statistics

Cronbach's Alpha No of Items

.798 26

Table 4.4: Reliability Test

Source: Primary Data

With the use of the Cronbach’s Coefficient Alpha test on variables under study, a coefficient

of .798. The results are congruent with what was found by Saunders, Lewis and Thornhill

(2009) and Christensen, Johnson and Turner (2011) who pointed out that any scale above 0.7

shows that the reliability is satisfactory. With regards to these recommendations therefore, the

statements under the variables of the study were concluded to be provide enough internal

consistency, therefore, reliable for data analysis as well as generalisation of the population.

42
4.5 Relationship between board size and firm performance
4.5.1 Descriptive Analysis
The first objective of the study was to analyse the relationship between board size and firm
performance of a company listed on the Stock Exchange. Table 4.6 presents the analysis of
statements that were used in coming up with answers to the first research objective.

Table 4.5: Board size and Firm performance Descriptive

Item SA A N D S Likert Std.
% % % % D Mean Deviation
%
The bigger the board size the better the firm 7 65 8 12 8 3.8 1.067
performance
Board size affects the performance of firms 27 49 5 6 13 3.29 0.988
Fewer board members increases firm performance 35.7 46. 6.4 11.4 0.0 4.01 1.124
6
Board size does not influence firm performance 18 48 17.2 13.2 3.6 3.71 1.129
Board composition is more important than size for firm 32.5 41. 4.6 10 11 3.9 0.991
performance 9
Source: Primary Data (2019)

From table 4.6 above,65% of the respondents agreed that the the bigger the board size the
better the fim performance. This was also buttressed by 7% of the population who strongly
agreed that a bigger board size is effective for firm performance. The question had a mean
value of 3.8 thus to say the sizes of board on corporate entities listed on Stock Exchange was
increasing to a greater extent. Furthermore, the question had a standard deviation rate of
1.067 which shows that the respondes were moderately distributed.

Adding on,42 % of the respondents agreed that the board composition was more important
than size for assessment on the impact of performance. The question had a mean value of 3.9
thus to say the board composition on performance is to a moderate extent. A standard
deviation rate of 0.988 which is close to 1 was attained thus to imply that the responses were
moderately distributed.

From the data gathered from the investigation into the impact of board size on the
performance of companies listed on the stock exchange, generally 50% and above concur that
the bigger the board size the better the performance.

4.6.2 The Relationship between Board size and Firm Performance

4.6.2.1 Correlation Analysis

Table 4.6 presents the correlation analysis results:

43
Table 4.6: Relationship between Board size and Firm Performance
Variable Firm Board Size
Performance
Firm Pearson Correlation 1
Performance Sig. (2-tailed)
Board Size Pearson Correlation 0.539 1
Sig, (2-tailed) 0.006
Source: Primary Data (2019)

The results show that there is a significant relationship between board size and firm
performance in listed entities in Zimbabwe. This was evidenced by the p value of 0.007
which is lesser than the critical value of 0.05.

4.6.2.2 Regression analysis

Table 4.7 below presents the regression analysis results:

Table 4.7: Relationship between Board size and Firm Performance

Variable Coefficient Standard Error T P-Value
ROE 0.231089 0.0166372 1.39 0.166
ROA 0.293722 0.122178 2.40 0.0052869
TOBIN Q 0.628933 0.0218458 2.88 0.004
Source: Secondary Data (2019)

Table 4.7 above shows a positive relationship between return on equity and board size. The

results imply that the larger the board size the higher the firm performance. Return on assets

and tobin q are also positive meaning that there is a positive relation between firm

performance and board size.

4.7 Board Independence and Firm Performance

4.7.1 Descriptive Analysis
The second objective of the study was to examine the relationship between board
independence and firm performance of a company listed on the Stock Exchange. Table 4.9
below presents the descriptive analysis from the second construct of the study.

Table 4.8: Board Independence and Firm performance Descriptive Analysis

Item SA A N D SD Likert Std.
% % % % % Mean Deviation
Board autonomy guarantees firm performance 49. 30.2 4.8 9.6 5.8 3.6 1.069
6
Independent boards perform better than less 24. 46.5 8.2 12. 9.2 4.2 1.947
independent bodies 3 6
The more independence a board is given, firm 27. 49.6 4.3 14. 3.8 3.9 1.778

44
performance increases 5 8
There is no relationship between board 34. 39.1 3.8 16. 6.2 3.1 1.823
independence and firm performance 7 2
There is a negative association between board 45. 29.1 3.7 1.982
independence and the performance of the firm 6
Source: Primary Data (2019)

From the survey, 49.6% of the respondents agreed that the board autonomy guarantees firm

performance while only 5.8% of the respondents dissent from this position. The statement

had a mean value of 3.6 which shows that the indeed board autonomy guarantees the

perforamance of entities listed on the Zimbabwe Stock Exchange. Overall, 80% of the

respondents concurred with the notion of board autonomy over factors. The other factor

which most respondents agreed on was adequate independence which 77% concurred on

adequate independence for performance results. The responses of the study were moderately

distributed as was evidenced by the standard deviation rate of 1.069. The basis of

performance measurement was determined by the Return On Equity of the entities under

consideration. Overall, a higher return on Equity was achieved where the board of directors

had greater autonomy over decisions.

4.7.2 The Relationship between Board Independence and firm performance

4.7.2.1 Correlation Analysis

Table 4.9 shows the correlation analysis results:

Table 4.9: The Relationship between Board Independence and firm performance
Variable Firm Performance Board Independence

Firm Performance Pearson 1

Correlation
Sig. (2-tailed)
Baord Pearson 0.527 1
Independence Correlation 0.002
Sig.(2-tailed)
Source: Primary Data (2019)

45
The correlation results above denote that there is a relationship between board independence

and firm performance. This was denoted by a p value of 0.002 which is lower than the critical

value of 0.05.

4.7.2.2 Regression analysis

Table 4.10 below presents the regression analysis results:

Table 4.10: Relationship between Board Independence and Firm Performance

Variable Coefficient Standard Error T P-Value
ROE 0.5017373 0.2545667 2.28 0.002
ROA 0.4012565 0.1869455 2.15 0.032
TOBIN Q 0.628933 0.0218458 2.88 0.004
Source: Secondary Data (2019)
Table 4.10 confirms a positive relationship between large board independence and firm

performance (return on assets, return on equity and tobin q). This implifies that an increase in

board independence results in an increase in tobin q return on assets and equity.

4.8 Concentrated ownership and firm performance

4.8.1 Descriptive Analysis
The third objective of the study was to investigate the relationship between concentrated

ownership and the performance of the firm. Table 4.12 below gives the findings from the

third construct of the study.

Table 4.11: Concentrated Ownership and Firm performance Descriptive Analysis

Item SA A N D SD Likert Std.
% % % % % Mean Dev
Concentrated ownership of firms increases the prospects 14.5 52.6 11. 16.5 5.2 3.35 0.985
of firm performance 2
Majority shareholding owned by a few individuals 31.5 42.1 3.3 13.3 9.8 3.25 1.110
influence sound financial decisions and hence improving
firm performance
The level of ownership has no influence on firm 9.7 11.8 6.5 8.9 12. 51.1 0.925
performance 2
The level of ownership of equity in firm positively 47.6 18.8 1.5 12.9 19. 3.44 0.956
affects firm performance 2
The level of ownership of shares alone is not sufficient to 34.5 46.5 3.87 1.427
determine the performance of the firm
Source: Primary Data (2019)
From the table 4.12 above 67.1% of the respondents agreed that concentrated ownership of
firms increases the chances of firm performamnce of 14.5% strongly agreed with this
position. Furthermore, a mean value of 3.35 was attained from the investigation which

46
implies that concentrated ownership is positively associated with performance. A standard
deviation rate of 0.985 was attained which implies that the responses of the study were
moderately distributed.

Furthermore, 21.5% of the respondents agreed that the level of ownership has no influence on
the performance of firms listed on the Zimbabwe Stock Exchange, while over 53% disagreed
with the position.

4.8.2 The Relationship between Concetrated Ownership and Firm Performance

4.8.2.1 Correlation Analysis

Table 4.12 below presents the correlation analysis results:

Table 4.12: Relationship between Concetrated Ownership and Firm Performance

Variable Firm Performance Concentrated Ownership
Firm Performance Pearson 1
Correlation
Sig. (2-tailed)
Concentrated Pearson 0.614 1
Ownership Correlation 0.006
Sig, (2-tailed)
Source: Primary Data (2019)
From the table 4.12 above the results denote that there is a positive significant relationship
between concentrated ownership and firm performance. This was evidenced by a p value of
0.006 which is lesser than the critical value of 0.05.

4.8.2.2 Regression Analysis

Table 4.13 below presents the regression analysis results:

Table 4.13: Relationship between Concetrated Ownership and Firm Performance

Variable Coefficient Standard Error T P-Value)
ROE 0.3465113 0.1177753 2.94 0.004
ROA 0.192524 0.134903 1.16 0.042
TOBIN Q 0.2219202 0.1546476 1.44 0.153
Source: Secondary Data (2019)
Table 4.13 above shows a positive and significant relationship between higher concentrated
ownership and company performance.The inference is that the higher the concentrated
ownership, the higher the firm performance (Tobin's Q, ROA and ROE).These results are
consistent with those obtained Baah (2017).

47
4.9 Audit committee independence and firm performance
4.9.1 Descriptive Analysis
The fourth objective of the study sought to scrutinise the relationship between audit
committee independence and firm performance. Table 4.15 below gives a descriptive analysis
on the fourth construct of the study.

Table 4.14: Audit Committee Independence Descriptive Analysis

Item SA A N D SD Likert Std.
% % % % % Mean Deviation
Audit committee independence guarantees firm 22.6 57. 15.0 2.3 2.7 3.6 1.004
performance 4
Audit committee independence has no influence 1.50 9.2 2.3 72. 14.5 3.23 1.083
on firm performance 0 5
The composition of audit committee is more 27.6 45. 9.6 11. 5.5 3.48 1.093
important than the independence in terms of firm 7 6
performance
There is a negative relationship between audit 19.5 61. 2.4 4.8 11.8 4.22 1.156
committee independence and firm performance 2
Audit committee independence aloneI is 32.7 52 8.0 7.3 3.52 1.142
sufficient to determine the level and extent of firm 0
performance
Source: Primary Data (2019)

As presented in table 4.14 above, 80% of the respondents agreed that audit committee
independence guarantees firm performance, while only negligible 2.7% disagreed with this
position. The statement had a mean value of 3.6 thus to say the audit committee
independence to a great extent guarantees firm performance. Adding on, a standard deviation
rate of 1.004 was attained thus to say the responses were moderately distributed.

Furthermore, 87% of the respondents disagreed that audit committee independence has no
influence on listed entities in Zimbabwe.. A mean rate of 3.23 was attained from the
investigation, thus to say the increase in audit committee independence will increase to
performance to a moderate extent. Furthermore, a standard deviation rate of 1.083 was
attained thus to say the responses to the statement were moderately distributed.

The results are in sync with what was recommended in the KING IV REPORT on Corporate
Governance, 2016.

4.9.2 Relationship between Audit Committee Independence and Firm Performance

4.9.2.1 Correlation Analysis

Table 4.15 below presents the correlation results:

48
Table 4.15: Relationship Audit Committee Independence and Firm performance
Variable Firm Audit Committee Independence
Performance
Firm Performance Pearson Correlation 1
Sig. (2-tailed)
Audit Committee Pearson Correlation 0.604 1
Independence Sig, (2-tailed) 0.009
Source: Primary Data (2019)
The results from table 4.15 show that there is a positive and significant relationship between
audit committee independence and firm performance. This was denoted by the p value of
0.009 which is lower than the critical value of 0.05.

4.9.2.1 Regression Analysis

Table 4.16 below presents the regression analysis results:

Table 4.16: Relationship between Audit Committee Independence and Firm Performance
Variable Coefficient Standard Error T P-Value)
ROE 0.0705491 0.2000733 0.35 0.725
ROA 0.1873369 0.1469273 1.09 0.078
TOBIN Q 0.2754126 0.262711 1.05 0.296
Source: Secondary Data (2019)

Table 4.16 directly above depicts a positive relationship between higher concentrated
ownership and firm performance.This implies that the higher the concentrated ownership, the
higher the tobin q, return on equity and asset.

4.10 Chapter Summary

The above table results indicated that the corporate governance related variables (board size,
board independence, concentrated ownership and audit committee independence) were good
predictors of firm performance. The findings of the study imply that all good corporate
governance practices have very high chances of positively affecting firm performance of
listed entities in Zimbabwe. From these findings one would therefore can conclude that good
corporate governace assures sound financial position of entities and are a critical success
factors for going concern for companies.

49
CHAPTER FIVE: CONCLUSION AND RECOMMENDATIONS

5.1 Introduction
The final chapter of the study provides the summary and recommendations to the study. This

chapter is imperative to the study as it gives the conclusions and recommendations on the

findings that were presented in the previous chapter, as well as the link between the findings

of the study and other elements of the study.

5.2 Achievement of Research Aim and Objectives

The aim of the study was on making an analysis of the effectiveness of corporate governance

on firm performance on listed entities in the tourism sector. The study focused on board size,

board independence, concentrated ownership and audit committee independence aspects of

corporate governance. The research had four objectives. It should be noted that the research

aim and objectives were achieved to a very great extent. Below is a detailed explanation of

the research aims and objectives.

5.2.1 First Research Objective: To analyze the relationship between board size and firm
performance of a company listed on the Zimbabwe Stock Exchange

The first objective of the study sought to analyse the relationship between board size and firm

performance of a ompany listed on the Zimbabwe Stock Exchange and the hypothetical

construct below was used to assess the relationship between variables under study.

There is a statistically significant relationship between board size and firm performance

The variables were described in the literature in which a gap to conduct the study on the

effectiveness of corporate governance on the companies listed on the Stock Exchange in the

Tourism Sector. Data was collected with the use of the questionnaire. The construct was

analyzed with the use of the SPSS version 20. The Cronbach Alpha was used to conduct the

reliability of the data collected for analysis. The results provided an excellent justification for

statistical analysis to be conducted on board size. The questions were descriptively analyzed

50
with the use of frequencies, mean (3.8) and standard deviation (0.905). The descriptive

analysis denoted a general agreement in the size of the board and, how it is positively

attributed to increased firm performance. The p value computed was 0.006 hence it was

established that board size is positively linked to firm performance. From the above, it can

therefore be said that the alternate hypothesis was accepted as the null hypotheses was

rejected.

5.2.2 Second Objective: To examine the relationship between board independence and
firm performance of a company listed on the Zimbabwe Stock Exchange

The second objective of the study sought to examine the relationship between board

independence and firm performance of a company listed on the Zimbabwe Stock Exchange

and the hypothetical construct below was used to assess the relationship between variables.

There is a positive correlation between board independence and firm performance

The need for the research was necessitated after variables were analyzed in the literature.

Data was collected, with the use of the questionnaire research instrument relating to the

independence of the baord. Analysis was conducted with the use of the SPSS version 20.

Cronbach Alpha tested reliability. The results provided an excellent justification for statistical

analysis to be conducted and the generalization of the population on statements board

independence on firm performance.

The questions were descriptively analyzed with the use of frequencies, mean (3.9) and

standard deviation (1.740). The descriptive analysis denoted a general agreement in the

prevalence of how board independency contributed to increased firm performance to a greater

extent and the moderation in the responses to the statement, hence denoting the accuracy of

the findings. The p value obtained was 0.002 and suggested a statistically significant

relationship between board independence and firm performance. From the above, it can

51
therefore be said that the alternate hypothesis was accepted as the null hypotheses was

rejected.

5.2.3 Third Objective: To investigate the relationship between concentrated ownership

and firm performance of a company listed on the Zimbabwe Stock Exchange

The third objective of the study sought to investigate the relationship between concentrated

ownership and firm performance of a company listed on the Zimbabwe Stock Exchange and

the hypothetical construct below was used to investigate the relationship between variables.

There is a positive relationship between concentrated ownership and firm performance

The need to conduct an investigation on concentrated ownership and firm performance was

arrived at after variables were analyzed in the literature and a gap was identified. Data was

collected, with the use of the questionnaire research instrument. Data analysis was carried out

with the use of the SPSS version 20. Cronbach Alpha tested reliability. The results provided

an excellent justification for statistical analysis to be conducted and the generalization of the

population on statements of concentrated ownership.

The questions were descriptively analyzed with the use of frequencies, mean (3.5) and

standard deviation (1.070). The descriptive analysis denoted a general agreement in the

prevalence of concentrated ownership and it contributed to positive firm performance to a

greater extent and the moderation in the responses to the statements, hence denoting the

accuracy of the findings. The p value obtained was 0.006 depicting a statistically significant

relationship among the variable. From the above, it can therefore be said that the alternate

hypothesis was accepted as the null hypotheses was rejected.

5.2.4 Objective Four: To scrutinize the relationship between audit committee

independence and firm performance of a company listed on the Zimbabwe Stock
Exchange

52
The fourth objective of the study sought to scrutinize the relationship between audit

committee independence and firm performance of a company listed on the Zimbabwe Stock

Exchange. The hypothetical construct below was used to investigate the relationship between

the two variables

Audit committee independence is positively associated to firm performance

The need to conduct an investigation on the relationship between audit committee

independence and firm performamnce the review of literature. Data was collected, with the

use of the questionnaire research instrument. Data analysis was carried out with the use of the

SPSS version 20. Cronbach Alpha tested reliability. The results provided an excellent

justification for statistical analysis to be conducted and the generalization of the population

on statements of audit committee independence. The questions were descriptively analyzed

with the use of frequencies, mean (3.6) and standard deviation (1.097). The descriptive

analysis denoted a general agreement in the audit committee independence and how it

positively influenced firm performance. The p value obtained was 0.009, from the analysis is

which shows a statistically significant relationship among the variables. From the above, it

can therefore be said that the alternative hypothesis was accepted and the null hypotheses was

rejected.

From the above detailed analysis of the research objectives of the study, it can therefore be

concluded that the aim of the study was met.

5.3 Conclusion
From the findings of the study, it can therefore be concluded that the aspects of the corporate

governance including board size, the independence of the board, concentrated ownership, and

audit committee independence are critical for the sound financial performance of listed

entities in the Tourism sector which are listed on the Stock Exchnge. The findings are in sync

with the recommendations in the KING IV Report on Corporate Governance, 2016. It should

53
be noted however from the study that audit committee independence is the most important

factor of the variables that were selected for the study.

Based on the study performed, there is a positive and statistically significant relationship

between board size and the performance of the firms under study as well as the sector

selected for analysis.Based on the study performed, there is a positive and statistically

significant relationship between the independence of the board and the performance of the

firms under study as well as the sector selected for analysis

Based on the study performed, there is a positive and statistically significant relationship

between concentrated ownership and the performance of the firms under study as well as the

sector selected for analysis. Based on the study performed, there is a positive and statistically

significant relationship between audit committee independence and the performance of the

firms under study as well as the sector selected for analysis

54