The Effect of Corporate Governance on the Organizational Performance of Dairy Co-Operatives in Kenya

Abstract

The purpose of this study was to investigate the effect of corporate governance on the organizational performance of dairy co-operatives in Kenya. The study assessed five research questions: How does comprehensive strategic decision-making affect the organizational performance of dairy co-operatives in Kenya? How does participative governance affect the organizational performance? How does human capital affect the organizational performance? How does long-term orientation affect the organizational performance? To what extent does market orientation moderate the effect of corporate governance on the organizational performance of dairy co-operatives in Kenya? The study was guided by positivist research philosophy and descriptive correlational research design. The population of the study consisted of 198 executive directors/managers of active dairy co-operatives in eight counties in the Mt. Kenya region. A sample size of 184 was drawn using stratified random sampling, and data was collected using self-administered questionnaires. The data was then analyzed using descriptive statistics of frequency, distribution, mean, and standard deviation. Additionally, inferential data analysis methods of Pearson’s correlation, ANOVA, and multiple linear regression were used to test the hypotheses. Data was presented in tables and figures. Regarding the effect of comprehensive strategic decision making on organizational performance, the results of the multiple regression analysis showed that revenue per customer explained 49.7% of the variance, (R2=.497, F(9,121)= 73.938, p <.05, while ROA explained 29.4%, and product innovation explained 41.2%. It was found that comprehensive strategic decision-making was not significant in predicting revenue per customer, ROA, or product innovation and the null hypothesis was accepted. In relation to the effect of participative governance on organizational performance, the results of the regression indicated that revenue per customer explained 50% of the variance, (R2 = .50, F(5, 125) = 20.10, p < .05), while ROA explained 26.9%, and product innovation explained 41.2%. It was found that participative governance was not significant in predicting revenue per customer, ROA, or product innovation and the null hypothesis was accepted. Human capital was found not significant in predicting revenue per customer and ROA but significantly predicted product innovation, = .94, t(141) = 2.01, p <.05. Product innovation also explained 41.2% of the variance, (R2 = 0.412, F(9, 120) = 9.35, p < .05. This result led to accepting the hypothesis that human capital significantly affected organizational performance. The results of the regression indicated that long-term orientation significantly predicted revenue per customer, = 1.04, t(141) = 3.35, p <.05 and product innovation, = 1.56, t(141) = 1.43, p < .05. It was also found that revenue per customer explained 49.7% of the variance, (R2 = .497, F(5, 125) = 20.10, p < .05, while ROA explained 29.4 %, (R2 = .294, F(5, 123) = 9.06, p < .05. Product innovation explained 41.2% of the variance, (R2 = 0.412, F(9, 120) = 9.35, p < .05. In relation to the moderating variable, the regression results revealed that market orientation significantly predicted revenue per customer, = -2.85, t(141) = -2.24, p < .05; ROA, = 2.14, t(141) = 5.9, p < .05; and product innovation, =1.89, t(141) = 5.77, p < .05. It was also found that revenue per customer explained 49.7% of the variance, (R2 = .497, F(5, 125) = 20.10, p < .05, while ROA explained 29.4 %, and product innovation explained 41.2%. However, the results showed that market orientation did not significantly moderate the relationship between corporate governance and organizational performance. This study concluded that keeping the respective roles of governance and management in the co-operatives distinct allowed the board to prioritize organizational ends and leaving the implementation to the management. This study recommends that a governance code should be developed for co-operatives based on the stewardship theory as it is better aligned to co-operative principles, which are predicated on democracy and inclusive participation. This study further recommends the inclusion of board members other than the CEO, as respondents for future research into the corporate governance of dairy co-operatives.