THE MODERATING EFFECT OF OPERATING ENVIRONMENT ON CORPORATE GOVERNANCE AND FIRM PERFORMANCE: A CASE OF CORPORATE ENTITIES LISTED AT NAIROBI SECURITIES EXCHANGE

Abstract

Firm decisions are majorly affected by the operating environment in which they exist.
Environmental context represents an exterior ecosystem. Effect of external
environment context on strategic management is a discussion that is ever ongoing
within which the organizational decisions and strategy are integrated. Operating
environment either pose a threat or offer opportunities necessary to steer organization
performance. The purpose of this study was to establish whether the operating
environment had any moderating effect on the relationship between corporate
governance and performance of firms listed at the Nairobi Securities Exchange (NSE).
The study targeted all of the 66 the firms listed at the NSE within the period of the
study. Both primary and secondary data sources were used. Reliability and validity of
the study instruments was ascertained. Stepwise regression analysis was used to test
for the moderating effect of operating environment. From estimation, it was revealed
that corporate governance had a positive and significant effect on performance of
listed firms at NSE whereas operating environment significantly moderated the
relationship between corporate governance and firm successes amongst companies
listed at NSE. Based on the findings, the study recommends for strict adherence to
guidelines by listed firms as proposed by capital markets authority. There is a
necessity for firms to clearly identify and define the components and dimensions of the
environment under which they operate. The study therefore recommends for
organizational blending with their environment in order to remain relevant.