1.0 Background of the Study2
1.1 Statement of the Problem4
1.2 Purpose of the Study6
1.3 Research Questions7
1.4 Importance of the Study7
1.5 Scope of the Study8
1.6 Chapter Summary8
2.0 Literature Review9
2.2 Research Question 1: Is the CEO also the Board Chairman?9 2.2.1 Corporate Governance9
2.3 Research Question 2: Are there board committees in the board of directors?10 2.3.1 Board of Directors10
2.3.2 Board Structure11
2.3.3 Board Committees12
18.104.22.168 The Audit Committee12
22.214.171.124 The Compensation Committee14
126.96.36.199 The nomination Committee14
2.4 Research Question 3: Does Standard Investment Bank provide financial statements to its investors?15 2.4.1 Regulators and Professional Bodies15
188.8.131.52 Legislative Law15
184.108.40.206 The Nairobi Stock Exchange16
220.127.116.11 Capital Markets Authority16
18.104.22.168 Institute of Certified Public Accountants of Kenya (ICPAK)16
22.214.171.124 Institute of Certified Public Secretaries of Kenya (ICPSK)17
2.5 Chapter Summary17
3.0 RESEARCH METHODOLOGY18
3.2 Research Objectives18
3.3 Research Design18
3.4 Population and Sampling Technique19
126.96.36.199 Sampling frame19
188.8.131.52 Sample size19
3.5 Data Collection Method19
3.6 Research Procedures20
3.6.2 Request for Research Participation20
3.6.3 Survey Questionnaire20
3.7 Data Analysis Method21
3.8 Chapter Summary21
Background of the Study
In Kenya, the Nairobi Stock Exchange (NSE) provides a link between the buyers and sellers of shares. The Nairobi Stock Exchange acts a market where excess funds can be channeled to companies that need these resources. To facilitate the trade, brokerage firms have been incorporated to aid both the buyers and sellers of shares in making important investment decisions. The investment banks provide crucial information and advice to the investors on when to buy or sell shares and the type of company shares to trade in. The investment banks also act as a depository institution where investors can open accounts and deposit money for trading.
Recently, reports about financial scandals at brokerage firms have been reported in media. Two brokerage firms Nyaga Stock Brokers and Ngenye Kariuki Stock Brokers were involved in malpractices that included trading in clients shares without prior consent from the investors. A common trait between the two brokerage firms was that they both operated with negative operating incomes and very weak balance sheets. These events have shaken investor confidence and led to question the integrity and honesty of brokerage firms.
To restore investor confidence in the brokerage firms and the Nairobi Stock Exchange, there is need for the brokerage firms to report and disclose their financial information to their investors. These will provide much needed information to investors in choosing which brokerage firm to solicit services. In addition, the brokerage firms should also adopt good governance through implementation of regulations in corporate governance.
In other more developed stock markets, financial reporting and disclosure by brokerage firms is a mandatory practice that is governed by laws and regulations. In developed markets, it has been established that the majority of cases of corporate fraud by brokerage firms are undertaken through non-disclosure of financial information. Preventive measures have been put in place to prevent non-disclosure of financial information from becoming a major avenue of theft of investors’ assets. Loopholes of embezzlement and looting have been identified and amended in the existing laws and regulations by the relevant institutions in government and the private sector.
Good governance includes full disclosure of information regarding a company’s policies,...