Effect of corporate governance on the financial performance of state owned enterprises in Zambia.

Corporate governance is a mix of guidelines, practices and procedures by which
organizations are guided and controlled. This study was focused at investigating the effect
of Corporate Governance on the Financial Performance of State-Owned Enterprises
(SOEs) in Zambia, focusing on State-Owned Enterprises in Lusaka Zambia. Financial
performance of SOEs was measured using return on assets while corporate governance
attributes used included board composition, independent committees, board size and firm
size. A random sample of 165 respondents from SOEs was selected for the study out of
which 125 respondents completely answered and returned the questionnaires. This gave a
response rate of 75.7% which was very satisfactory. The data was analysed using
descriptive statistics and multiple regression analysis. The study found that independent
committees, board size and board composition negatively impacted financial performance
of SOE’s. This is because SOEs spend more money with respect to their size which ends
up reducing finances for SOEs. Furthermore, the research found that the bigger the size of
the firm, the higher the standings of its financial performance. In addition, the research
found a positive correlation between corporate governance and financial performance of
SOEs. Therefore this implies that exercising excellent corporate governance enhances
financial performance of SOEs and vice versa. The study therefore recommends that SOEs
should focus their efforts towards reducing board size, independent committees and board
compositions if they want to improve their financial performance. Furthermore, SOEs
should continue to invest in projects that will enable them acquire huge market shares
which will result in growth in their financial status.
Keywords: Corporate Governance, Financial Performance, State Owned Enterprises