Chapter one
1.0 overview:
This chapter related to the introduction of study, it consist , problem statement, objectives of
study , research questions, significance of study, scope of study, operational definition of key
terms and conceptual framework of study.
1.1 backgroud
As the board of directors is the key element of corporate governance, it is clear that its
composition must be responsive to the basic functions that are assigned to it: supervising and
monitoring, avoiding opportunistic behaviour on the part of executives, and providing advice to
decision makers to improve the management of the business. These aspects have also been
looked at by researchers who have studied whether the determining factors in the composition of
boards are related to the basic functions assigned and whether this composition has an impact on
the management of the business ((García Martín & Herrero, 2018)
One of most important mechanisms of corporate governance is the company‟s board of directors.
The functions and efficiency of board of directors have become the focus in academic. “Firm
value and performance has often been employed as a proxy for determining the governance
capability of a company. However, attempts to determine the effectiveness of governance
mechanisms based on these indicators have produced mixed findings. The study on boards of
directors is one of them.” (Liu and Fong, 2010, p164) In many studies it is recognized as an
“important institution for mitigating the agency problem that arises with absentee ownership…”
(Mclntyre, 2007, p1) An important function of board of directors is to reduce agency cost and
handle conflicts that caused by the separation of ownership and management.(Wu, 2009)
There are many measures of firm performance: revenue, profitability, stock price, and production
efficiency, to name just a few. This note, Measuring Firm Performance in Latin America and the
Caribbean focuses on two measures. First, real labor productivity growth (the annual rate of
growth of real sales per worker) is used as a proxy for how efficiently a firm uses its labor
inputs.2 Second, employment growth is used as a measure of the absorption of labor in the
production process. Both measures are expressed as annualized growth rates.3 Ideally, growth is
based on both higher productivity and rising employment, as more resources are put to work
productively, but these measures do not always move in tandem((Definitions & Surveys, 2011)
1.2 Problem Statement
the board of directors is the key mechanism of corporate governance in large business
corporations and superior board composition enhances firm’s decision-making, and potentially
improves wealth-creating capabilities with a sufficient level of corporate accountability
(Thomsen & Conyon, 2012).
However, in Somalia board composition last years have direct influence of an organisation to
monitor management effectively and enhance on firm's performance but most of board directors
are management un-awareness because lack of planning, organizing, controlling and not
understanding how organisation work, although many studies related to this phenomenon have
been written to other parts of the world,
However in Somalia despite the importance of this new phenomena there is no enough literature
that has been written on composition of board of directors. so a further investigation is necessary
about Compositions of board of directors and the impact on the firms performance
1.3 objectives of the study
1.3.1 General Objectives
The main purpose of the study is to find out composition of board of directors and its impact on
firms performance
1.3.2 Specific Objectives
1. To describe the effect of managing broad on firm’s performance in Somalia.
2. To investigate the effect of working board on firm’s performance in Somalia.
3. To describe the effect of policy board on firm’s performance in Somalia.
1.4 Research questions
1. What is the effect of managing board on firm’s performance in Somalia?
2. What is the effect of working board on firm’s performance in Somalia?
3. What is the effect of policy board on firm’s performance in Somalia?
1.5 significance of the study
The study will also be useful for institution both public and private because it makes them aware
of the existing issues and also proper ways to come up with a long lasting solution for the
researched problems. This study also will be useful for future researchers because it will act as a
source of information, and also guideline for them to follow in subsequent studies related to
same problem under investigation. In addition to this, the study will also be benefited by the
local community because it creates conscious awareness of the severity of a particular problem
and also the urgency of the need for a solution.
1.6 Scope of the study
This study is intended to investigate the impact of board composition on firm’s performance; it
will be conducted in Mogadishu, Somalia. According to the time period that university board of
research has allocated for students to complete their studies, this study will be conducted the time
span between September, 2020 to June, 2021.
1.7 conceptual frameworks
Conceptual framework is used to flaunt the association between variables in the knowledge; it
used in qualitative date or categorical variables to to summarize the context affiliation of the the
board of directors is the key mechanism of corporate governance in large business corporations and
superior board composition enhances firm’s decision-making, and potentially improves wealth-creating
capabilities with a sufficient level of corporate accountability (Thomsen & Conyon, 2012).
However, in Somalia board composition last years have direct influence of an organisation to monitor
management effectively and enhance on firm's performance but most of board directors are
management un-awareness because lack of planning, organizing, controlling and not understanding how
organisation work, although many studies related to this phenomenon have been written to other
parts of the world, However in Somalia despite the importance of this new phenomena there is no
enough literature that has been written on composition of board of directors. so a further investigation
is necessary about Compositions of board of directors and the impact on the firms
performanceexplained variable and explanatory variables. This below figure aids the sudy to
accomplish the condition, thus the following fig displays the process to relate the variable of the
sudy.
IV composition board of directors DV firms performance
Managing boards
Working boards firms performance
Policy boards
Referen
1 García Martín, C. J., & Herrero, B. (2018). Boards of directors: composition and effects on the
performance of the firm. Economic Research-Ekonomska Istrazivanja , 31(1), 1015–1041.
[Link]
2 Liu, H.X and Fong, M.W.L (2010) Board characteristics of medium and large Chinese companies,
Corporate Governance: 10(2), p163-175
3 Mclntyre,M.L., Murphy,S.A. and Mitch,P. (2007) The top team: examining board composition and firm
performance, Corporate Governance: 7(5), p547-560
4 Wu, W. (2009). Board Composition and Firm Performance: A Quantitative Study on Chinese Listed
Companies. Distribution, 1–81.
5 Definitions, B., & Surveys, T. E. (2011). Measuring Firm Performance in Latin America and the
Caribbean 1. 1–6.