Midlands State University

FUCULTY OF COMMERCE
DEPARTMENT OF ACCOUNTING

AN ANALYSIS OF THE BOARD OF DIRECTORS COMPOSITION’S EFFECTS ON

THE PERFORMANCE OF STATE OWNED ENTERPRISES (CASE OF ZESA
HOLDINGS)

SUBMITTED BY

CHAMUNORWA MAPURANGA (R199477N)

A DISSERTATION SUBMITTED IN PARTIAL FULFILMRNT OF THE

REQUIREMENTS FOR THE (MASTERS OF COMMERCE IN ACCOUNTING
DEGREE) OF MIDLANDS STATE UNIVERSITY

GWERU ZIMBABWE, MARCH 2021

 DECLARATION FORM

I, Chamunorwa Mapuranga, declare that this project is my own work and has not been copied from
any source without acknowledging the source.

…………………………………… ……………………………...

SIGNATURE DATE

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 APPROVAL FORM

The undersigned do hereby certify that they supervised the student Chamunorwa Mapuranga
(R199477N) on the research topic entitled: An analysis of the board of directors composition’s
effects on the performance of state owned enterprises, submitted in partial fulfilment of the
requirements of the Bachelor of Commerce Accounting Honours Degree (HACC) at the Midlands
State University.

SUPERVISOR……………………………….. DATE…............................................

CHAIRPERSON….......................................... DATE………………………………

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 RELEASE FORM

Name of student: Chamunorwa Mapuranga

Dissertation title: An analysis of board of directors composition’s effects on

performance of state-owned enterprises: A case of ZESA
Holdings

Degree title: Master of Commerce Degree in Accounting

Year this degree granted: 2021

Permission is hereby granted to the Midlands State University Library to produce single copies of
this dissertation and to sell or lend such copies for private or scholarly research purposes. The
author does not reserve other publication rights for the dissertation nor make extensive extracts
from it be printed or otherwise reproduced without the Author’s written permission.

SIGNED……………………………………………….

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 DEDICATION

This dissertation is dedicated to my parents, my brother and friends who in various capacities
supported and inspired me to embark on this journey to see the project be a success.

iv
 ABSTRACT

The study aimed to analyze the composition of the board of directors to establish its effects on the
performance of ZESA Holding a state owned enterprise in Zimbabwe. The study sought to
investigate if there is any relationship between firm performance and different proxies of board
composition. Three proxies or characteristics of the board including board independence, board
gender diversity and board size were used to find their effects on the performance of ZESA
holdings. The performance of a firm was measured by (ROA) an accounting based measure. The
study reviewed literature on board composition linking it mainly to the agency theory, which
underpins the study. Quantitative research approach was used in the study to find the relationship
between the independent and dependent variables with a case study as a design. The sample of the
study was drawn from the ZESA Holdings group and subsidiaries using stratified random
sampling. The sample consisted of members from directors and senior management. Study was a
desk research, which used only secondary data that was obtained from the group’s annual reports;
other alternative sources of data were national budgets and published statements by the Ministry
of Energy and Power Development. The data collected was entered into IBM SPSS software
(version 26) for analysis. Using SPSS, Pearson correlation analysis and multiple regression was
conducted to find the relationships between the variables under study. The results both correlation
and regression analysis found that significant positive relationship exists between board
independence and gender diversity and performance of ZESA. On the contrary, a significant
negative relationship was found between board size and firm performance. The study recommends
establishing boards that are dominated by independent non-executive directors and embarking on
gender main streamlining to achieve improved performance. Additionally, the study recommends
a board that is not too large, of between seven and eleven directors as noted by other authors.
Recommendations for further study are that similar studies could be useful that covers a large
number of companies. Additionally use of both primary and secondary data in future studies can
bring more evidence. The study used Citavi 6 for referencing and bibliography.

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 ACKNOWLEDGEMENTS

Special gratitude goes to my academic supervisor Mr. K Mavengere for all the support, guidance
and patience that he provided during the course of this project. I say thank you.

Further, I also pass my gratitude to the Accounting Department at Midland State University for
imparting knowledge and mentoring me throughout the course of this program.

Special thanks also goes to the ZESA Holdings executive staff for affording me the opportunity to
undertake a study on their organisation. Mostly, I feel indebted to the Chief Accounting officer for
continuously providing information needed to undertake this research.

Finally, I thank my parents for the support they gave me and my brother for inspiring me. Above
all, I thank the Almighty God for the opportunities and achievements he continues to provide in
my life.

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 TABLE OF CONTENTS
DECLARATION FORM ................................................................................................................. i
APPROVAL FORM ....................................................................................................................... ii
RELEASE FORM .......................................................................................................................... iii
DEDICATION ............................................................................................................................... iv
ABSTRACT .................................................................................................................................... v
ACKNOWLEDGEMENTS ........................................................................................................... vi
LIST OF TABLES .......................................................................................................................... x
LIST OF FIGURES ....................................................................................................................... xi
LIST OF ACCRONYMS .............................................................................................................. xii
CHAPTER ONE ........................................................................................................................... 1
1.0 INTRODUCTION .................................................................................................................... 1
1.1 Background of the study ........................................................................................................... 1
1.1.1 Background information of ZESA Holdings ......................................................................... 3
1.2 Statement of the Problem .......................................................................................................... 5
1.3 Research objectives ................................................................................................................... 6
1.3.1 Primary objectives ................................................................................................................. 6
1.3.2 Secondary objectives ............................................................................................................. 6
1.4 Research questions .................................................................................................................... 6
1.5 Research hypothesis .................................................................................................................. 6
1.6 Significance of the study........................................................................................................... 7
1.6.1 Significance to Policy Makers ............................................................................................... 7
1.6.2 Significance to State owned enterprises ................................................................................ 8
1.6.3 Significance to academia and other stakeholders .................................................................. 8
1.7 Delimitation/ scope of the study ............................................................................................... 8
1.7.1 Subject Scope ......................................................................................................................... 8
1.7.2 Geographical scope ................................................................................................................ 9
1.8 Limitations of the study ............................................................................................................ 9
1.9 Chapter summary ...................................................................................................................... 9
CHAPTER TWO ........................................................................................................................ 10
2.0 LITERATURE REVIEW ....................................................................................................... 10
2.1 Introduction ............................................................................................................................. 10
2.2 Corporate governance ............................................................................................................. 10

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2.2.1 Corporate governance in Zimbabwe .................................................................................... 12
2.3 Corporate performance ........................................................................................................... 13
2.4 Directors’ composition............................................................................................................ 14
2.4.1 Board independence and firm performance ......................................................................... 15
2.4.2 Board diversity and firm performance ................................................................................. 17
2.4.3 Board size and firm performance ......................................................................................... 18
2.5 Theoretical Perspectives ......................................................................................................... 20
2.5.1 The Agency theory of corporate governance ....................................................................... 20
2.6 Conceptual framework ............................................................................................................ 21
2.7 Empirical Research ................................................................................................................. 22
2.7.1 Association between directors’ independence and firm performance ................................. 22
2.7.2 Association between gender diversity and firm performance.............................................. 23
2.7.3 Association between board size and firm performance ....................................................... 24
2.8 Research gap ........................................................................................................................... 25
2.9 Chapter summary .................................................................................................................... 25
CHAPTER THREE .................................................................................................................... 26
3.0 RESEARCH METHODOLOGY............................................................................................ 26
3.1 Introduction ............................................................................................................................. 26
3.2 Research philosophy/paradigm ............................................................................................... 26
3.3 Research approach .................................................................................................................. 28
3.4 Research design ...................................................................................................................... 29
3.4.1 Case Study Design ............................................................................................................... 29
3.5 Population and sampling procedure ........................................................................................ 30
3.5.1 Target population ................................................................................................................. 30
3.6 Sample and sampling procedure ............................................................................................. 31
3.6.1 Sample of study and sampling technique............................................................................. 31
3.7 Data collection procedure ....................................................................................................... 33
3.8 Sources of data ........................................................................................................................ 33
3.9 Data Presentation and Analysis .............................................................................................. 34
3.10 Ethical considerations ........................................................................................................... 35
3.11 Chapter Summary ................................................................................................................. 35
CHAPTER FOUR ....................................................................................................................... 36

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4.0 DATA PRESENTATION, ANALYSIS AND DISCUSSION ............................................... 36
4.1 Introduction ............................................................................................................................. 36
4.2 Correlation analysis ................................................................................................................ 36
4.3 Regression analysis ................................................................................................................. 38
4.4 Hypothesis testing ................................................................................................................... 40
4.5 Chapter summary .................................................................................................................... 42
CHAPTER 5 ................................................................................................................................ 43
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS................................................. 43
5.1 Introduction ............................................................................................................................. 43
5.2 Summary ................................................................................................................................. 43
5.3 Theoretical findings ................................................................................................................ 44
5.5 Recommendations ................................................................................................................... 46
5.5.1 Recommendations on board independence .......................................................................... 46
5.5.2 Recommendations on gender diversity ................................................................................ 46
5.5.3 Recommendations on board size ......................................................................................... 47
5.6 Suggestion for further research ............................................................................................... 47
References ..................................................................................................................................... 49
APPENDIX 1-LETTER FOR REQUESTING DATA................................................................. 53
APPENDIX 2 – SIMILARITY INDEX REEPORT .................................................................... 55

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 LIST OF TABLES

Table 3 1: Target population of the study ................................................................................ 31

Table 3 2: Pearson correlation analysis .................................................................................... 37
Table 3 3 Regression and Model Summary .............................................................................. 38
Table 3 4 Coefficient ................................................................................................................... 39

x
 LIST OF FIGURES

Figure 2 1: Conceptual framework ........................................................................................... 22

Figure 2 2: Quantitative research approach ............................................................................ 29

xi
 LIST OF ACCRONYMS

ABBREVIATION MEANING
SOE STATE OWNED ENTERPRISES
ZESA ZIMBABWE ELECTRICITY SUPPLY AUTHORITY
ZETDC ZIMBABWE ELECTRICITY TRANSMISSION AND
DISTRIBUTION COMMISSION
ZPC ZIMBABWE POWER COMPANY
ROA RETURN ON ASSETS

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 CHAPTER ONE

1.0 INTRODUCTION

A number of empirical studies have been conducted across the world in past years on board
composition and performance. The subject has been of interest to many researchers in the past
decades (Akbar, 2015; Emile, et al., 2014). Previous studies addressed the influence of board of
characteristics and composition on firm performance. However, studies that make up the literature
have been conducted mainly outside the boarders of our country many of which have been
conducted in developed countries.

Scandals in companies have been reported and several corporate collapse and or challenges
associated with board failures have been surfaced in the past in Zimbabwe. Major cases include
companies like Air Zimbabwe, PSMAS, ZESA, Zimbabwe Broadcasting Authority and African
Renaissance Bank. The scandals or problems revealed in these companies centered on lack or poor
oversight by board or incompetence of boards. Against this background the study investigates the
directors’ composition’s effects on company performance in Zimbabwean State owned enterprises
to reveal if the board composition has any effects on company’s performance using ZESA holdings
as a case study.

1.1 Background of the study

According to the (State Enterprise Restructuring Agency (SERA, 2017), State Enterprises and
Parastatals (SEPs) play a major role in Zimbabwe in the provision of basic services. Considering
the services, they provide to the economy it is imperative to ensure that the State Owned
Enterprises are accountable to the public, become transparent in all respects, become efficient and
effective as well as profitable. The report also reiterated that government should make sure these
entities create value for society by subjecting them to professional and transparent management,
which require SEPs to function in an atmosphere, which necessitates strict compliance with good
corporate governance practices. Thus, SEPs need environment that subjects them to proper and

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adequate oversight and enforcement such that their contribution is maximized which leads to the
competitiveness and development of the Zimbabwean economy.

Zimbabwe has been lagging in the adoption of corporate governance. As a country we have been
adopting the codes from other countries particularly the King code and the OECD. However,
according to the (State Enterprise Restructuring Agency (SERA, 2017), important corporate
governance reforms and milestones have been witnessed. The reforms as indicated by Choruma
(2015) include the introduction of the Corporate Governance Framework for State Enterprises and
Parastatals in 2010, promulgation of the first corporate governance code (ZimCode) in 2015, the
Public Entities Corporate Governance Act in 2018 and the Companies Act in 2020.

“A plethora of local, regional and international company collapses; judicial management, fraud
and corruption are ills that have characterized the corporate landscape” (Obert et al., 2014, p. 78).
SOEs in Zimbabwe has experienced a trend of underperformances. “The under-performance takes
the form of: loss making; inadequate, expensive and poor service delivery; excessive debts; and
results in; antiquated infrastructure and capital equipment; inadequate working capital; under-
capitalization; skills deficits; vandalism and looting; and mismanagement and corruption” (State
Enterprise Restructuring Agency, 2017).

To date, emphasis within the literature on board efficacy has been exposed by the collapse of iconic
enterprise giants that are the envy of investors and competitors (Sifile et al 2014) with a focus on
the board of directors` importance in corporate governance. However, as Maune, (2015) argue,
Zimbabwe is lagging behind in terms of board of directors` code as compared to Western and
Eastern countries. Focusing the analytical gaze on State Owned Enterprises (SOEs) survival hinges
on an effective board with effective and controlling functions (Moyo, 2016). Also using Zimbabwe
as the contextual setting contributes to an emphasis on development and implementation of board
of directors` codes.

Siwadi et al, (2015) identified board composition in corporate governance to be critical for
corporate performance especially in emerging and transition economies. More so, Shungu et al
(2014) established that an effective board depends on an effective selection process for new
directors, which in turn rests on a clear outline of what the duties of a director are, hence also, the
board should, therefore, be structured and composed of in such a way that it will act to monitor
itself.

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Wushe et al (2015) identifies that an important factor that has resulted in poor board performances
in SEP’s is many inconsistencies in board tenures. There have been a considerable number of cases
where changes in the ministerial appointments affected state owned enterprises boards thereby
disrupting the continuance of strategy execution and succession plans. According to Sandra and
Andres (2017), there are no stable boards in SOEs, the boards are often exposed to changes caused
by the dynamics and political interference of the state. They noted that the state appoints and
disappoints the members of the boards of SOEs and this affects the periods served by the directors
because of the political cycle. In turn, this therefore, generates a challenge for the directing bodies
of state-owned companies: to ensure the continuity of the company’s leadership, regardless of the
changes in the political/electoral system.

1.1.1 Background information of ZESA Holdings

ZESA Holdings (Private) Limited was incorporated under the Companies Act [Chapter 24:03].
The Company manages its 100% owned subsidiaries that is Zimbabwe Power Company (Private)
Limited, Zimbabwe Electricity Transmission and Distribution Company (Private) Limited,
Powertel Communications (Private) Limited and ZESA Enterprises (Private) Limited. The
Company is governed by the Electricity Act [Chapter 13:19].

ZESA Holdings has generally been under-performing especially in terms of providing the much-
needed services such as electricity. There is also growing concern of overcharging the electricity
rates by the consumers, which are high as compared to the regional rates. In contrast, the company
has failed to combat financial challenges especially concerning payment of its workers. In 2014,
the company was marred with battles with its formers employees for failing to honor some of its
financial obligations.

ZESA holdings has had more than its fair share of scandals in the media including corporate
governance scandals and issues unearthed by the auditor-general over the years. The scandals and
corporate governance issues include tender awarding which is not according to procedures,
inflation of projects, operation of company without a board just to mention but a few.

According to Bhoroma (2020), the company created an all-powerful executive chairpersonship

post violating the Public Entities Corporate Governance Act and Zimcode, which states that the

3
two posts should be held by separate persons to ensure power separation. The results of that move
resulted in company funds being diverted to fund private projects like ZESIT and payment of ghost
employees.

Moreover, corporate governance decay within ZESA include tender awarding which is not
according to procedures. According to the Auditor General report (2018), ZETDC a subsidiary of
ZESA procured from Pito Investments US$5million worth of transformers in April 2010 but the
supplier had not yet delivered until 2019. ZPC another subsidiary in 2016 paid US$562 000 for
supplies which were never delivered.

According to Zhangazha (2016), ZPC a subsidiary of ZESA holdings controversially inflated

power generation projects by more than US$ 500 million. This happened in the face of the directors
who are supposed to be watchdogs and the energy minister blamed the ZESA CEO and managing
director of ZPC for the scandal. ZESA Holdings paid Intratrek US$5.6 million in advance without
bank guarantees for the Gwanda solar project, which up to date has never kick started, and to date
no amount paid to that supplier has been recovered (Bhoroma, 2020). Another big scandal is that
of the Dema power Plant which had been won by APR Energy Holdings in 2016 but was politically
handed over to Sakunda holdings, which had been rejected by the procurement board and not
participated in the tender process. Awarding the tender to according to APR energy could have
saved the company US$200 million but in fact, the project after being awarded to Sakunda doubled
from US$249 million to US$498 million (Bhoroma, 2020)

In addition, ZESA holdings has had more than its fair share of cases where its entire board is fired
or replaced without clear reasons to the extent of operating for a period without a board. In 2019,
the minister dissolved the whole board on issues of incompetence. In addition, according to Mhetu
(2020), the president suspended the executive chair and the whole board to pave way for
investigations by the Zimbabwe Anti-Corruption Commission (ZACC) of corruption when the
energy minister leveled corruption allegations against them. The executive chair was being
accused “among other things, using for personal use five vehicles, including one he allegedly gave
to his wife and diverting ZESA resources to operate his personal gold mine (Mananavire, 2020).

The above backdrop shows vast cases of corporate governance issues that impact the core
principles i.e., transparency, accountability and fairness and this explains the underperformances
trends of the SOE over the past years.

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1.2 Statement of the Problem

The Zimbabwe Economic Policy Analysis and Research Unit (ZIPARU 2011) in its working paper
identified electricity as a critical factor of production, which enables technological advancements
and in turn stimulates the economy. This makes ZESA holdings the distributor of the electricity a
critical SOE as noted in the 2016 national budget as one of the ten SOEs prioritized for reform.
However, the performance of ZESA constantly has been brought into question with the press
flooded with scandal of the board and top executives and constant anxiety being raised on the
ability of ZESA’s ability to provide electricity for economic recovery.

According to State Enterprises Restructuring Agency SERA (2017), ZESA has been
underperforming and the under-performance takes the form of: loss making; inadequate, expensive
and poor service delivery; excessive debts; and results in; antiquated infrastructure and capital
equipment; inadequate working capital; under-capitalization; skills deficits; vandalism and
looting; and mismanagement and corruption.

ZESA presents a very interesting case study because of the spate of recent and recurrent
publications in the media indicating that corporate governance is in turmoil at the power utility.
According to IMF report, (2018) ZESA and other state enterprises and parastatals have been
suffering from decaying corporate governance evidenced by misappropriation and
mismanagement of funds, abuse of office. According to Mhlanga (2016), the ZESA wave of
scandal include tender scams and gross regularities involving billions of united states dollars such
as the Intratrek tender, and the Dema power plant project where in the former the tender involving
US$5million embroiled by ZPC which was not sanctioned by the board.

The corruption swindles at ZESA are so alarming and leave one wondering whether ZESA and its
subsidiaries have boards of directors that superintend them. With the scandal backdrop of the SOE
and the underperformances the researchers seek to analyze what causes theses underperformances
and recurring scandals in the presence of the board. This research focuses on board composition
factors such as independence, gender diversity, and board size, exploring how the Board
characteristics of ZESA affects the performance of the corporate using Return on Assets as
performance proxy.

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1.3 Research objectives

The study had both primary and secondary objectives as illustrated below

1.3.1 Primary objectives

The main objective of the study was to establish how the board of directors’ composition influence
the performance of ZESA holdings for the period 2015 to 2019. Thus, establishing link between
board composition and corporate performance.

1.3.2 Secondary objectives

The following are the specific objectives sought to be achieved by the research

1. To establish the relationship between board independence and corporate performance.

2. To establish the relationship between board gender diversity and corporate performance.
3. To examine the relationship between board size and corporate performance

1.4 Research questions

1. What is the relationship between board independence and corporate performance?

2. What is the relationship between board gender diversity and corporate performance?
3. What is the relationship between board size and corporate performance?

1.5 Research hypothesis

The following outlined hypothesis were developed and tested

H01: There is a negative relationship between board composition and corporate performance

H1: There is a positive relationship between board independence and corporate performance

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H02: There is a negative relationship between board gender diversity and corporate performance

H2: There is a positive relationship between board gender diversity and corporate performance

H03: There is a negative relationship between board size and corporate performance

H3: There is a positive relationship between board size and corporate performance

1.6 Significance of the study

A number of studies have been conducted on the topic of board characteristics and corporate
performance (Makhlouf et al., 2017; Tulung and Ramdani 2018). According to Darmadi (2011),
although there has been a growing number of studies on the subject the results have been mixed
and remain debatable. In addition, a number of studies including studies by authors Abdullah
(2016), Entenbang and Masnor (2011) and Zhang (2012) has been undertaken. However, these
studies were conducted outside the context of developed countries (Darmadi 2011). This study
seeks to answer calls by Darmadi (2011) who called for studies to be done in developing and or
emerging markets. The current study is relevant as it seeks to contribute to literature by providing
an understanding of composition of boards’ effects on performance in Zimbabwean context, which
is a developing country.

1.6.1 Significance to Policy Makers

Policy makers include those that make rules, regulations and decisions that affects the running of
state owned enterprises. These include the government, its cabinet and or ministry that SOEs falls
under. Adoption of good corporate governance practices in Zimbabwe has been slow as evidenced
by endorsement of Zimcode and the Corporate Governance Framework for State Enterprises and
Parastatals in 2015 and 2010 respectively (Choruma 2020). This study is of importance to the
policy makers, as it will seeks to articulate the issue of corporate governance specifically effects
of board composition to performance. Results of the study and recommendations can help them to
understand the importance of good corporate governance so that they align SOEs to recommend
practices, which will help, stimulate our economy.

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1.6.2 Significance to State owned enterprises

The study might assist declining and underperforming SOEs to align strategies through ensuring
that recommended boards are in place and recommended boards practices are adopted which
should help to improve SOEs performance in Zimbabwe. The study will analyze how certain board
characteristics (i.e. independence, size and board gender diversity) affects the performance of an
organization and as such recommend thereof the kind of boards to put in place in SOEs. Thus, the
results of this study might influence the formulation of governance policies for the enhancement
of efficiencies and corporate governance structures in SOEs in Zimbabwe

1.6.3 Significance to academia and other stakeholders

The study is important to scholars, academia and other relevant stakeholders because it contributes
to the existing body of knowledge concerning corporate governance practices and organizational
performance by state enterprises. The study will contribute to the agency theory, which underpins
the study. It helps to highlight the existence of agency problems in Zimbabwean SOEs as
evidenced by scandals like those of ZESA and PSMAS where agents were acting mainly to further
their interests other than the company. The study will enable the shareholders comprehend this
theory and existence of the problem of agency such that they will devise appropriate mechanisms
that solve the agency problem.

1.7 Delimitation/ scope of the study

1.7.1 Subject Scope

This study covered components of board composition, which included board independence, board
size and gender diversity. The study focused on how these variables affecting the performance of
ZESA holdings using profitability, return on assets (ROA) as measures of performance.

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1.7.2 Geographical scope

The research was conducted in Zimbabwe. It focused on one state owned enterprise ZESA
Holdings. The research is confined to the country’s capital city i.e. Harare as this is where the
company is headquartered and therefore where the board and top executives are concentrated. This
is where the registered office of the company is located.

1.8 Limitations of the study

The research will consider only one state enterprise i.e., ZESA Holdings, as it is a case study.
Considering that, the selected company is in the energy industry and there that other SOEs fall
under different industries the results may not holistically be applicable to other industries.
However, the researcher will ensure that he gathers as much data as possible that cover a period of
more than one year such that the results and conclusion can be valid and thus be relied upon. In
addition, author selected an SOE that is considered critical in development of economy i.e., in the
energy industry is affects performance of many SOEs in the economy. The rationale is that if this
is analyzed results and findings can be spread to other SOEs such that they can learn and become
efficient.

1.9 Chapter summary

This chapter marked the underpinning of the research. The chapter covered the background of the
study, statement of the problem, research objectives and questions, limitations and delimitations.
Chapter two reviews the existing literature and will try to fit the study within the existing literature
covering the identified gap. Chapter three covers the research methodology i.e., how the research
was conducted. Chapter four, dwells on data analysis and presentation of findings. The final
chapter gives conclusions and recommendations for further study based on the findings from the
study.

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 CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Introduction

This chapter critically reviews corporate governance literature relating to the research questions
mentioned in the previous chapter. It presents literature related to the composition of the board and
its effects on corporate performance. The chapter is organized into first, discussion of corporate
governance, corporate governance in Zimbabwe, then discussion of corporate performance and its
measures, director’s composition and the theoretical perspectives that discuss the agency theory
of corporate governance, which underpins the study. The next section discusses the conceptual
framework, outlines proxies of board composition namely independence, gender diversity and size
which are the independent variables, describing their link to corporate performance the dependent
variable. The chapter goes on to discuss similar studies conducted by other previous researchers
and then outline the gap in research which the study intent to fill i.e., gap analysis.

2.2 Corporate governance

According to Aguilera and Jackson, (2018) and Tricker, (2014) governance of companies is a
complex and broad aspect in business which has been described by different authors and schools
of thoughts affiliated to subjects such as economics, political science, management, law and
sociology and culture. Corporate governance is defined in a many different ways depending on the
views and school of thoughts. Corporate governance is mainly concerned with the “exercise of
power over corporate entities” (Tricker, 2014: p.29). It refers to the “rules, processes and laws by
which companies are operated, controlled and regulated” (Gitman and Zutter, 2014: p.20).
According to Masdoor (2014), corporate governance is mainly centered on the processes that
relates to decision-making and the implementation of those decisions in an organisation.

The Cadbury report took an operational perspective and defined corporate governance as a ‘the
whole system of controls, both financial and otherwise by which companies are directed and

10
controlled’. The Organization for Economic Cooperation and Development (2017) put forward the
same view as the Cadbury report stating that corporate governance ‘is concerned with the
structures, processes, procedures and practices of directing and controlling the organisation’.

The financial or economics perspective articulated by Shleifer and Vishny (2017) defined
corporate governance as a field that deals with the ways in which suppliers of finance to
corporations get assurance of getting a return on their investment. Aguilera and Jackson (2010)
stated that corporate governance is to do with power and influence over decisions. This resonates
well with what Tricker (2014) termed the relationship perspective which sees corporate
governance as a structure for distribution of rights and responsibilities.

Rezaee (2019) highlighted that the legal view of corporate governance focuses on the enforcement
of shareholder rights, rules and principles that regulate the power relationships. Therefore, from
this legal and regulatory perspective corporate governance is the system of laws, rules and factors
that control the operations within an organisation (Rezaee, 2019).

Demb and Neubauer, (2016) shared the stakeholder perspective which takes a wider view of those
involved in and affected by corporate governance and states that corporate governance is the
process by which corporations are made responsible to the rights and wishes of stakeholders.
Stakeholders are defined as “the individuals and groups of individuals who have a special stake or
claim on the company and affect or affected by the organisation’s activities” (David 2017, p49).
Stakeholders include employees, managers, stockholders or shareholders, board of directors,
customers, suppliers, distributors, creditors, governments, unions, competitors, other lobby groups
and the public.

The societal perspective, according to Tricker (2014) puts the organisation as an entity that exists
within society. The corporate governance framework is there to encourage the efficient use of
resources and equally to require accountability for the stewardship of those resources.

It is quite clear that these perspectives of defining corporate governance are not mutually exclusive
because they overlap and are inter related and the process is evolving. Tricker (2014) advises that
it is important to adopt the perspective that is applicable to the matter under review. Thus, in
relation to this study the existence of the board of directors fall under the concept of corporate
governance. That being the case the concepts are going to be analyzed in relation to the principles

11
of corporate governance were board of directors are concerned. Therefore, follows that corporate
governance is the process affected by a set of legislative, regulatory, legal, market mechanisms,
listing standards, best practices and efforts of all corporate governance participants. The
participants include company’s directors, officers, auditors, legal counsel and financial advisors,
which creates a system of checks and balances with the goal of creating and enhancing enduring
and sustainable shareholder value, while protecting the interest of other stakeholders
(organisational performance).

2.2.1 Corporate governance in Zimbabwe

As a market that is still emerging, the current market in the country is still in the process of being
regulated. Indisputably, there is still need for efforts to ensure that improvement materialize. Prior
empirical studies obtained results that are mixed and debatable on the investigation of effects of
board composition on the performance of companies with samples drawn from different regions
including Zimbabwe. The concept and idea governance of corporates started to be introduced in
Zimbabwe corporations in the end of 1990s. “The authorities have adopted a top-down, legalistic
approach to the development of corporate governance, based primarily on transplanting stylized
features of the Anglo-American corporate governance system” (Neshamba, 2011, p.34). Despite
efforts, being made in the country to ensure corporate governance is adopted the efficiency and
effectiveness of governance mechanism in Zimbabwe is still below the international standards and
because of this, there is a lot of work to be done to make a better relationship between shareholders
and management teams (Manne, 2018).

As what has been discussed, corporate governance has become a worldwide important task and
many developed markets have built good samples on how to establish and develop efficient
governance mechanisms. With the development of “market-economy” in Zimbabwe, reformation
of Zimbabwean corporations is going into a new phase. In Zimbabwean capital market, corporate
governance is getting more attention. The Zimbabwean stock markets has been one of the stock
markets lagging in growth since its establishment as evidence by lagging and few achievements
over the past years (Saurombe, 2018). There are notable problems that need solving; firstly, the
listed companies are not performing well enough according to the requirement of efficient
governance mechanisms. Secondly, ownership structure is inappropriate as the structure is

12
characterized by over large percentile of shares concentration to only a few giant shareholders, and
lastly insufficient monitoring of the activities of management by the board.

This study examines the features that characterize a “good board”. These include board
independence, gender diversity and board size. And then it is going to adopt a linear regression
model to examine the correlation between board composition and firm performance based on this
sample.

2.3 Corporate performance

In general, corporate performance is classified in two broad ways namely accounting-based and
market-based measures. Jaka et al., (2019), support this in their study; they described them as two
measurement models of corporate financial performance. Both the measures have both advantages
and drawbacks. However, selection of specific indicators depends on the interest and justification
of the researcher.

Market based measures according to Jaka et al., (2019) encompass marker-participants’

expectations about a company’s ability to generate value in the long term. They incorporate
external expectations and perspectives on future value of a firm. The main advantage of this
measure is that there is less chance of manipulation by management of the information used.
Market based measures include the popular Tobin’s Q used by many researchers including Badu
(2020), Ntim and Osei (2011) and Koji ae al., (2020) among others.

Accounting based measures on the other hand are considered effective indicators of company’s
profitability (Swidi and Fadzil, 2014). These include Return on Assets (ROA), Return on
Investment (ROI), Return on Equity (ROE) and earnings per share (EPS) just to mention but a
few. These measures uses historical financial data from a company’s financial statements.
According to Jaka et al., (2019), the main weakness of this measure is that the measure can be
manipulated, as financial statements can be window dressed. However, the main advantage is that
the measure can better address organizational capacity and efficiency.

Whilst, studies put forwards different measure bases, the author adopted the accounting based
measure of performance. This is in line with the study conducted by Johl et al., (2015) on board
characteristics and board performances among other studies. In this study, the author used Return

13
on Assets (ROA) as used by Badu, (2020), Jaka et al., (2019) in similar studies. The rationale for
use of accounting based measure was that ZESA holdings is a private owned organisation (not
publicly traded) and as such market values are not readily available and as such the option was to
rely on the financial statements and therefore adoption of the measure. To mitigate the limitation
of this measure that is statements manipulation the author obtained audited financial statements,
which would have passed through audit scrutiny and therefore should provide reliable information.

2.4 Directors’ composition

An important mechanism of corporate governance is the board of directors of a company. The

functions and efficiency of the Board of Directors are at the forefront of academia. To determine
how well a company is governed firm value and performance has often been employed as proxies.
However, attempts to determine the effectiveness of governance mechanisms based on these
indicators have produced mixed findings (Liu and Fong, 2010). The board undertakes an important
function in an organisation, which involves reducing costs associated with agency and resolving
of disputes that arises from the principal agent relationship.

In addition to the effectiveness of the board mechanism, the relationship between the board and
the operations of the company has received a lot of attention from academia and the business
community. The Board is the prestigious group of individuals who oversees the executive
managers’ decisions and operations in an organization. They are elected into those positions by
owners/shareholders to protect their interests. Their main responsibility is to make sure that the
agents (top management) works for the benefits of the company other than pursuing their own
interests. Agency theory affiliates posits that, board of directors is responsible for monitoring and
advisory tasks including supervising management behaviors to reduce agency conflicts and align
the interests of the parties, monitoring the CEO and protecting all shareholders interests
Makhlouf., et al (2017).

Given the importance of the board, it is worth examining which board meets the requirements of
"good boards" to improve corporate governance and the firm's performance. It is undisputable that
one characteristics of a good board in any organisation is independence from the executive
management. It has been noted that, “ensuring independence of the board from management has
been considered crucial to developing effective board structures and operation” (Liu and Fong,

14
2010, p.167). Some codes including the Zimcode and the State owned enterprises corporate
governance code put forward principles and/or guidelines with regard to the minimum
requirements of board of director of a company.

Corporate governance research has been popular in Western countries for the past few decades
and is gaining traction in other countries, including Zimbabwe. However, the results obtained on
studies on this topic are indecisive. Panasian (2003) as quoted by Zemzem & Kacem (2014) found
that increasing the number of outsiders on the boards has positive influence on firm performance
as it reduces reduce agency problem. On the contrary, Fuzi et al., (2016) in a study established that
proportion of independent directors on the board does not guarantee firm performance. Although
no conclusive results have been obtained regarding the correlation between the composition of the
board of directors and the performance of the company, research on the subject is very mature in
the West, especially in the United Kingdom United, Netherlands, France and Switzerland,
recognized as the best performing countries. These experiences offered tremendous inspiration to
many less developed countries, such as Zimbabwe, which is one of the developing countries in the
world and very eager to establish efficient governance mechanism.

2.4.1 Board independence and firm performance

Board independence is concerned with the presence of outside directors that is, those members
who are not involved in day-to-day operations of business among the board (Makhlouf et al.,
2017). Independence of board is very vital in corporate governance reforms in both developed and
developing economies and markets. Independent directors ensures that the board is effective and
therefore assumes the monitoring and advisory role to management. According to Latif et al.,
(2013) independent directors brings independent views and add to skill and expertise diversity of
the directors besides being watchdogs and advisors to ensure that the interests of all stakeholders
are represented.

Sandada et al., (2014), Al-Matari, (2011) and Menozzi, (2012) in concurrence mentioned that the
independence of the board is considered as one of the features of a good board. In order to build
efficient governance mechanism, independent board is preferred because it is logical that directors
can make fair decision when they are independent from management. Importance of the board
independence is shown by how other countries like the United States through the Securities

15
Commission has made it mandatory for companies to have at least 33 percnt of directors. In
addition our own corporate governance code Zimcode (2014) and Corporate Governance
Framework for State Enterprises and Parastatals of (2010) recommends that a board should have
a majority of none-executive directors in order to enhance objectivity in decision-making.

According to the agency theory on which this research is based, the existence of independent
directors helps to improve and enhance the performance of a firm. (Makhlouf et al., 2017). This
rationale is that non-executive directors provides monitoring services without bias and also bring
their expertise to the firm to protects interests of the shareholders’. Managers and owners of
companies with independent directors are able to find the best solution to agency problems and
therefore effectively control executive decisions (Lutfi et al., 2014).

The relationship between board independence and firm performance is mixed and different
researchers have put inconclusive results forward. As put by Latif et al., (2013) there is no
consensus reached on the subject. On one hand studies by Yammeesri and Herath (2010) found
that existence of independent directors does not affect firm’s value. Additionally Hooi and Ming
(2010) in their study could not find any association between firm performance and ratio of
independent directors. On the contrary, a number of studies has established a positive relationship
between the two variables. (Coles et al., 2012; Duchin et al., 2010; Olusola, & Abiodun, 2013)
indicates that there is a positive relationship between board independence and performance in their
studies. The reason was that independent directors, as they are financially independent from
managers are objective and are in position to protect the shareholders’ interests thereby enhancing
performance. This also concurs study by with Tulung and Ramdani (2018) who suggested that
there exists a positive relationship between independence and firm performance. Thus, the
following hypothesis is proposed

H1: There is a positive relationship between board composition and corporate performance

16
2.4.2 Board diversity and firm performance

Board diversity has not been given much attention by business organizations in the past (Dedunu
and Anuradha, 2020). As a result, nowadays people compete to define and explore in all its aspects
although no common consent has yet been established (Dedunu and Anuradha, 2020). Authors as
Jindal and Jaiswall (2015), Darmadi (2011) among others concurred that diversity can be
categorized into observable and non-observable attributes. The former, which also called readily
detected attributes, include demographic characteristics such as age, race, gender and ethnicity
while the later include educational background, experience, personal traits and values (Jindal and
Jaiswall, 2015). Studies have most centered on gender diversity. However, mixed conclusions have
been put forward some reporting positive association to performance and others a negative
correlation (Miller & Triana, 2009). The current study focuses on two proxies for diversity, gender
and skills to decipher the effect of diversity on performance of ZESA holdings.

In a study, using both accounting measures and market measures of performance Haslam et al.,
(2010) reports that board room gender diversity is not significantly linked to performance of a
company using return on assets (ROA) and return on equity (ROE) as measures . Moreover, the
study found the relationship with market measure of performance using (Tobin’s Q) to be negative.
Moreover, in concurrence to Halem et al., (2010) Adams and Ferreira (2009) found a negative
relationship between fraction of woman in boardroom and performance. The main reason of their
findings was that greater gender diversity is likely to result in conflicts and hence slow decision
making which in turn affects performance.

Some studies failed to find any relationship between gender diversity and firm performance. A
study conducted in the US by Carter et al. (2010) is one of those attempts in which they find no
connection, positive or negative, between gender diversity and the financial performance as
measured by the ROA and Tobin's Q. In addition, Marinova et al. (2010) were unable to find to
find any significant relationship between performance and gender diversity.

Studies exist that have found positive relationships between gender diversity and firm
performance. Such studies include study by Ararat et al., (2010) done in Turkey where positive
associations were found. Additionally, Ferreira (2009) examined boardroom gender diversity’s
impact on corporate performance. The results were that highly gender diversified board’s puts

17
more effort on monitoring and thus a positive relationship exists. Those who find positive
relationship believes that gender diversity brings advantages to the firm in the way that diversity
brings creativity and innovation to the firm (Darmadi, 2011). Even studies have shown mixed
findings on gender diversity the dominant argument is that there is a positive relationship that exist
between gender diversity and corporate performance. The second hypothesis is proposed as
follows:

H2: There is a positive relationship between board gender diversity and corporate performance

2.4.3 Board size and firm performance

Determining the optimum size of the board of directors is a difficult task. The Zimcode (2014) and
Corporate Governance Framework for State Enterprises and Parastatals (2010) only recommends
a greater number of non-executive directors but does not mention the optimum number. Different
schools of thought put forward different propositions on boards’ size. From the perspective of
agency theory, large boards can make coordination and decision-making more complex and less
efficient, as it is more difficult to manage, that is to get agreement on decisions. (Makhlouf et al.,
2017). Therefore the view is that the small the board the more effective. On the contrary,
Dhamadasa et al., (2014) and Guest, (2009) on the resource dependency theory recommends larger
boards with reason that they bring more members from different professional backgrounds, which
will enhance the firms’ performance.

Two most important functions of the board of directors are those of advising and monitoring the
activities of management. The advisory function involves the provision of expert advice to the
CEO and access to critical information and resources (Fama and Jensen, 2013). Both insiders and
outsiders perform this, although Fama and Jensen (2013) note the importance of outside directors,
who bring valuable expertise and potentially important connections. The advantage of larger board
size is the greater collective information that the board subsequently possesses and hence larger
boards will lead to higher performance). Furthermore, the board has mandate to monitor,
discipline, and remove any ineffective management teams, to guarantee that managers always acts
in the interests of shareholders.

18
Raheja (2015) argues that insider directors provides an important source of firm-specific
information to the board. However, their objectiveness can distorted due to private benefits and
lack of independence from the chief executive officer. Compared to insiders, outsiders are more
independent, providing better monitoring and oversight role. Nonetheless, they usually are less
informed about the firm’s activities than their counterparts are. Again, the advantage of larger
board size and an increasing number of nonexecutive directors is the greater collective information
possessed by the board which is also valuable for the monitoring function (Lehn et al., 2014).
Therefore, both functions predict an initial improvement in board performance as board size
increases, and increases in the number of non-executives are expected to have a more positive
impact than increases in the number of executive directors.

However, there are eventually disadvantages of large boards in the form of coordination costs and
free rider problems. Firstly, coordination and communication problems arise because it is more
difficult to arrange board meetings, reach consensus, leading to slower and less-efficient decision-
making (Jensen 2013). Secondly, board cohesiveness is undermined because board members will
be less likely to share a common purpose, communicate with each other clearly, and reach a
consensus that builds on the directors’ different points of view (Lipton and Lorsch, 2012). Thirdly,
director free riding increases because the cost to any individual director of not exercising diligence
falls in proportion to board size (Lipton and Lorsch, 2012). Jensen (2013) and Lipton and Lorsch
(2012) suggest that as board size increases beyond a certain point, these inefficiencies outweigh
the initial advantages from having more directors to draw on, leading to a lower level of corporate
performance. Lipton and Lorsch (2012) argue that a board size of eight or nine directors is optimal,
whilst Jensen (2013) argues that the optimum board size should be around seven or eight directors.

Like other board characteristics, there are mixed finding on the relationship between board size
and firms’ performance. Set et al., (2013) found that board size has a negative correlation with
company performance. Therefore, smaller sizes are better because larger sizes of boards require a
higher cost of coordination and costs such as rewards and benefits. Uadiale (2010) in a study where
performance was measured by return on equity (ROE) and return on capital employed (ROCE)
found a positive relationship. Sanda et al., (2011) found that the company's performance is
positively linked to smaller boards rather than larger ones. Thus, the following general hypothesis
is proposed;

19
H3: There is a positive relationship between board size and corporate performance

2.5 Theoretical Perspectives

2.5.1 The Agency theory of corporate governance

Corporate governance is important for the success of every entity, especially regarding the
monitoring role of the board of directors (Heenetigala and Armstrong, 2011). Much of the research
into corporate governance stems from the agent theory. According Heenetigala and Armstrong,
(2011) Ross and Mitnick in their studies were the first scholars to propose the theory of agency.
The agency theory cites the problems that arises in corporates as a result of the separation of
ownership and management and emphasizes on the reduction of this problem (Panda and Leepsa,
2017). The theory explains and resolves the problems that arises in the relationships between the
principals and their agents. The relationship is between the shareholders who are the principals
and the company executives as the agents.

Brahmadev and Leepsa, (2017) posits that the theory helps to implement various governance
mechanisms to control the agents’ action in the jointly held corporations. The shareholders
(principals) elects directors who are responsible for running the company who in turn delegates
the operations of the company to management and employees (Muhanguzi, 2019). However, the
major issue is whether the agents will run the business in the interests of their principal or in their
own interests (Brahmadev & Leepsa, 2017). The agent may not necessarily make decisions, which
are in the best interests of the company but may succumb to self-interest opportunistic behavior
that falls short of correspondence between the ambitions of the shareholders and those perused by
the agents. The reasons behind the pursuit of self-interests by agents are related to their own job
security, remuneration and status. For example, management may be interested in getting packs
that is huge amounts of remuneration, luxurious cars and offices and other benefits at the cost of
the principals.

The board of directors forms the topmost corporate level of management through which the efforts
and activities of management are directed and monitored. The board act as a coordinator between
the principal and the management and therefore should equally represent the interests of both

20
parties to minimize agency problems. Within ZESA, management committees may make decisions
that are not in the best interests of the shareholders. This therefore demands the owners to put in
place a board with a leadership style that demonstrate integrity and fairness in directing the
company affairs.

It is undeniable that as a result of the division of ownership and control, agents may not always be
able to act in the best interests of the principal. According to Muhanguzi, (2019), the principal
need to implement internal corporate governance mechanisms to monitor managers’ activities to
induce them fulfill their contractual obligations. These mechanisms include board size, board
independence and diversity discussed later in detail.

2.6 Conceptual framework

Tis study aimed to analyze the effect of directors’ composition on performance. It sought to
investigate the relationship between independent variables (independence, gender diversity and
size) and dependent variable, firm performance a measured by (ROA). The concept is in line with
studies conducted by Makhlouf (2014) and Kufahakutane, (2014. The framework is based on the
premise that relationship exists between board composition and firm performance and this case
study seeks to analyze that relationship.

The left hand side shows the board composition, which covers three independent variables, which
include independence, board size and gender diversity. All these independent variables are linked
to corporate performance as shown by the arrows. The proxy used for company performance was
Return on Assets (ROA). Three hypothesis to be tested by this study were formed basing on the
board composition. Figure 2.2 below explains in summary relationship between board composition
and performance

21
Figure 2 1: Conceptual framework

Independent variables Dependent variable

(Directors composition)

Board Independence

Firm performance
Board gender diversity
 ROA

Board size

Figure 2.2: Conceptual framework

Source: Author, (2020)

2.7 Empirical Research

2.7.1 Association between directors’ independence and firm performance

In theory, both executive directors and independent directors bring different merits in board
governance mechanism. Inside directors can gain a better understanding of how companies do
business because they are closer to information and better at making decisions that are more
accurate. Moreover, independence of the board is considered a critical characteristic of good board
because of its impartiality and other strengths. Much research on the subject regarding the board
mechanism has yielded results on the association between the proportion of independent directors
and the value and performance of the company. Some evidence supports the hypothesis that
independent directors improve the performance of a company. Some found that having an
independent board of directors had an inverse impact on management performance, while others
suggested that there was no significant correlation.

22
The association between board composition and the performance of firms has been observed in
numerous studies. Evidence on the relation between percentage of independent directors and firm
performance are mixed and are categorized into positive relation, negative relationship and no
significant relationship.

Although the results are still debatable, many recent empiric studies concur that there is a
significant positive relationship between board independence and firm performance. Liu et al.
(2015) in a study conducted on 2057 listed companies in China using ROE and ROA as proxies
for firm performance found that proportion of autonomous directors positively influence
significantly firm’s performance. Ramdani and Witteloostuijn (2010), Tulung, and Ramdani
(2018) and Abdulah (2016), support this proposition that independence of directors positively
influences performance of a firm.

On the other hand, Zhang & Wang (2013), in a study of 1515 Chinese listed firms found the
relationship between independence and firm performance to be significantly negative. The finding
is in correspondence with Chatterjee (2011) who also found that the relationship is significantly
negative.

Moreover, there are studies that found a no relationship between independence of directors and
firm performance. Abdulah (2016) conducted a study in Malaysia of 2510 listed firms. The result
using regression analysis was that there is no significant relationship between independence and
firm performance. This result concurs with findings by Azeez (2015), Johl et al., (2015) and
Makhlouf et al., (2017) who also concluded in their studies that no significant relationship exists
between board independence and performance of firm.

2.7.2 Association between gender diversity and firm performance

Gender diversity when discussing the board refers to the proportion of female to male directors in
the composition of the board. Different arguments on the association between gender diversity and
performance have been put forward. Ararat et al. (2010) in a study of Turkish listed firms proposed
in the study that there is evidence that positive association exists between proportion of women on
the board and firm’s performance. The findings are in concurrence with Li and Chen (2018), Sanan

23
(2016), Kılıç and Kuzey (2016), Dobbin and Jung (2011) and Low et al., who in their studies also
found a positive relationship using either ROA or ROE as performance proxies.

Gender diversity have negative relationship with firm performance according to other studies.
Reasons cited include that gender diversity is likely to bring conflicts in the boardroom and slow
down decision making which negatively affects performance (Darmardi, 2011). Triana et al.,
(2013) supports this view and suggests in their study that the relationship is most negative.
Interestingly according to authors like Marinova et al., (2015) in a study conducted in Denmark
and Netherlands there is no relation between board diversity and performance of firm.

2.7.3 Association between board size and firm performance

Board size refers to the number of board members on the board structure. (Darmadi, 2011).
Generally, there is no a specific number of people who are required to sit on the board. However
most Empirical evidence on the characteristics is mixed and as such results are varied. Set et al.,
in their results concluded that size of board is significantly negative related to performance. Their
argument was that small boards are easier to coordinate and are less costly than larger boards. This
postulate is in line with study by Sanda et al., (2011) who also argued that firm performance is
negatively correlated with large boards as opposed to smaller boards because in larger boards there
is large communication distance, which slows decision-making and therefore negatively affect
performance.

On the other hand, some studies put forward that a positive relationship exists between board size
and firm performance. Kalsie and Shrivastav (2016) in their study of 145 non-financial companies
listed in India using ROA and ROCE as performance proxies found that a positive and significant
relationship exists between size and performance. Other studies that came to the same conclusion
include hunu et al., (2017), Dhamadasa et al (2014), Isik & Ince (2016) and Tulund and Ramdani
(2018). Additionally, authors like Vaidya (2019) found no relationship between board size and
firm performance using ROA, ROE and Profit Before Interest and Tax (PBIT) as performance
proxies.

24
2.8 Research gap

The field of corporate governance and its effects on corporate performance has been of interest
since the early 1990s. Studies has been conducted in the field which include the studies by Menozzi
et al (2012), Saidi, & Al-Shammari, (2013); Vaidya, (2019); Sandada et al., (2014); Yammeesri &
Herath, 2010. These studies mainly focused on studies of companies in the private sectors such as
in most cases firms listed on various stock exchanges. Despite a number of studies being conducted
a few have considered the effects of corporate governance i.e., board composition in State owned
enterprise. Only a few studies by for example Menozzi et al., and Matamande (2018) considered
board composition in the context of state-owned enterprises. In addition, many of these studies
were done outside Zimbabwe, which leave a gap in literature. Authors like Kingdom et al. (2014)
called for further studies that focuses on other sectors besides banking sector and studies that cover
state owned enterprises. The current study intends to fill this gap in literature as there are many
studies conducted in the banking and manufacturing sectors and a few in Sate owned enterprises,
which were done outside our borders.

2.9 Chapter summary

This chapter looked at the available literature on the variables under study. The literature was
examined from the theoretical framework upon which the study is anchored. The conceptual
framework and empirical evidence make up as part of this chapter. From the discussion, it was
revealed that divergent views are held on the associations that exist between board independency,
board diversity and board size on firm performance. Some researchers argue that these variables
have a positive impact on performance thereby enhancing firm performance for example Wei and
Geng (2008) argues that board diversity increases firm performance as a diverse board means
diversity of expertise and innovation capabilities. On board size, researchers are of the view that
large board means great control and monitoring capabilities, which in turn increase firm
performance. This research is intended to draw conclusion on these associations based on its own
findings thus the following chapter presents the research methodology that the researcher
employed in coming up with the findings that will either confirm or repudiate existing literature.

25
 CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 Introduction

This study sought to establish the impact of the composition of the board of directors on
performance of State-owned enterprises (SOEs) and to achieve this, the first step was to assess
previously existing literature, which was done in the preceding chapter in which documentary
analysis, and discussion of such was done. This chapter is focused at discussing the different
methods that were used in this research to establish the impact of the composition of the board of
directors on performance of State-owned enterprises (SOEs) as well as answering the research
questions that guide the study. Therefore, this chapter is going to look at the research paradigm
that the study adopts the research approach, research design, population, sample and sampling
procedure, data sources and tools. The chapter will further go on to look at the issues relating to
addressing reliability, validity issues and ethical considerations then conclusion to the whole
chapter will be given.

3.2 Research philosophy/paradigm

Research philosophy is defined ‘as a system of beliefs and assumptions about the development of
knowledge’ (Saunders et al, 2019, p.130). According to Žukauskas, (2018), the assumption is
viewed as a preliminary statement of reasoning. However, it is based on the theorizing person’s
knowledge and insights that are born as a product of intellectual activity. Hitchcock and Hughes
1989 as quoted by Žukauskas, (2018) also concurs that research stems from assumptions. The
philosophical approach adopted in a study sets out the framework, which provides the relevant
answers to the research questions of the study. Research philosophy is all about knowledge
development in a particular field (Saunders et al, 2012). Saunders et al, (2012) as per research

26
onion, Žukauskas, (2018) and Cohen et al (2011) among other authors puts forward that there are
four distinguished trends of research philosophies namely positivism, realism, interpretivism and
pragmatism.

Among the four mentioned philosophies the two most popular are interpretivism and positivism.
The former according to Cunliffe, (2013) assumes that the world and reality are subjective and are
socially constructed and given meaning by people. This philosophy requires the researcher to avoid
starting with predetermined hypothesis. Interpretivism believes that what exist in reality and the
person observing it is inseparable.

On the other hand, there is positivism philosophy. This paradigm is most popular in natural
sciences and or scientific researches. It is associated with deductive logical reasoning, i.e. starting
with initial theories and or hypothesis then develop details that are more specific (Stainton, 2018).
Cooper and Schindler, (2011) notes that in this philosophy objectivism thrives over subjectivism
meaning that the only credible knowledge would be the one gathered through objective collection
and data interpretation. Thus, objectivity will require that the data be quantifiable such that
statistical analysis can be extended on the data (Collins, 2010). The personal beliefs of the
researcher therefore have no influence on the research study according to Crowther and Lancaster,
(2008). Stainton (2018) postulates that positivism only uses verifiable research data, which
collected in value-free manner to ensure that objective results are generated by the research.

The research philosophy adopted in this study was the positivist paradigm adopting the causal or
explanatory research. Since the researcher wanted to establish a causal relationship or link as
pointed by Alharahsheh et al., (2020) between the board of directors’ composition and firm
performance. The research started with research objectives and questions in chapter 1 and then
developed hypothesis in the second chapter. This is in line with Stainton (2018) who put forward
that positivist paradigm follows this logical reasoning.

The current study sought to identify the relationship between independent variables (board
independence, board size and gender diversity) and firm’s performance as measured by ROA.
According to Dudovskiy, (2016) casual studies focus on analyzing a situation or a specific problem

27
at hand to try and deduce and explain relationship patterns between the variables. In other words,
a casual research (also explanatory research) which this study adopted seeks to identify extent and
nature of causal and effect relationships between variables, which was the objective of this study.

The design was appropriate for the study because it fits the characteristics of causal research that
there should be presence of hypothesis, which is evident in the first and second chapter
(Dudovskiy, 2016). In addition, the study adopting this design allows for replication of the study
if necessary, which is not usually the case for exploratory researches. Moreover, the researcher
adopted a causal design because it is linked with greater levels of internal validity as subjects are
selected systematically.

3.3 Research approach

There are three main approaches to conduct research a put forward by Saunders (2012) namely
qualitative, quantitative approach and the mixed approach. According to Gray et al., (2010),
different research questions require different research approaches. The approach that a researcher
takes needs should be routed to the philosophy that the researcher adopts. The quantitative
approach is routed in the positivist philosophy

Quantitative research is generally associated with deductive approach and focus is mainly on using
collected data in testing theory or certain theories (Khembo, 2020). The method seeks to explore
relationships between variables, which are numerically, measured and analysed using statistical
techniques. Wilson (2010) proposes that developing a research hypothesis is deductive approach’s
focus. The main goal of quantitative research is to aggregate numerical values into statistics,
facilitate the interpretation of data results, and draw conclusions about research questions. The
quantitative approach uses the method of deduction, which gives realistic results after testing the
theory.

Quantitative approach tests to see if a link or association can be obtained in more general
circumstances (Gulati, 2009). Thus, it starts with theory then hypothesis development,
observations and rejection or confirmation of hypothesis. The aim of this study was to examine if
a causal relationship exists between the board composition (independent variables) and company
performance (dependant variables) as mentioned by Kembo (2020).

28
Figure 2 2: Quantitative research approach

Source: Dudovskiy (2018).

Considering the nature of the research questions and the hypothesis developed in the first and
second chapter the researcher chose the quantitative approach. In addition, since the researcher
was affiliated to the positivist paradigm it was only this approach which best suited the research.
This study followed a quantitative approach due to the measurable nature of the data. This
approach was previously adopted by Padachi et al. (2018) and Tshipa et al. (2018b).

3.4 Research design

The research design is a comprehensive sequence adopted by the researcher that guides the
researcher how to consider the information in the investigation and during the study. According to
Kothari 2004, as quoted by Tully (2014), research design is an abstraction within which research
is carried out and outlines data collection, measurement and analysis techniques to be used in a
study. According to Saunders and Thornhill, (2012), it is a slant, which the study pursues in
collecting and analysing research information. The study employs a case study design.

3.4.1 Case Study Design

A case study has been defined by Yin (2017) as a practical inquiry aimed at investigating a
contemporary phenomenon in its physical environment. The case study as a research strategy
draws information from “…multiple sources of evidence…” (Yin, 2017). In other words, this
method is a combination of different methods and approaches which aid the process to data
collection and analysis (Yin, 2017). Different types of case studies exists, according to (Yin, 2011)
these comprise exploratory, descriptive and explanatory. A study that is mainly centred on
answering the “what” questions calls for exploratory study (Yin, 2017). He further expanded that

29
if a research seeks to provide answers to how or why questions it is explanatory in nature and a
descriptive focus on an accurate description of the question in context.

The study henceforth adopts an explanatory case study in that board composition has been noticed
as a measure to turnaround organisations and business entities. The core objective of this study is
to assess the performance related consequences, which have resulted from the board composition
in SOEs in Zimbabwe. It therefore levels assumptions that the outcomes to be presented would
abet other researchers and organisations in understanding the performance, which come because
of turn around strategies they use. Since the research deals with subjective variables which are
idiosyncratic in nature, it is prone to bias Yin (2011) henceforth subjecting its findings to validation
by other researchers to improve its validity.

3.5 Population and sampling procedure

3.5.1 Target population

According to Saunders and Thornhill (2012), participants who present significant knowledge to
the study can be called a study population. A research population is also known as a well-defined
collection of individuals or objects known to have similar characteristics (Yin, 2011). All
individuals or objects within a certain population usually have a common, binding characteristic
or trait. Usually, the description of the population and the common binding characteristic of its
members are the same. "Government officials" for example is a well-defined group of individuals,
which can be considered as a population, and all the members of this population are indeed officials
of the government. The target population of this research was drawn from the managerial
complement and the board complement at ZESA Holdings. The population of the study is
illustrated in the table below.

30
Table 3 1: Target population of the study

DIVISION EXEC- NON-EXEC MANAGERS TOTAL

MANAGEMENT COMPLEMENT
DIRECTORS

ZESA 13 12 60 85
HOLDINGS

Source; Researcher, (2021)

As shown above a research population is generally a large collection of individuals or objects that
is the focus of a scientific query. It is for the benefit of the population that researches are done.
However, due to the large sizes of populations, researchers often cannot test every individual in
the population because it is too expensive and time-consuming. This is the reason why researchers
rely on sampling techniques.

3.6 Sample and sampling procedure

According to Kothari (2004) in Mwanzia (2014), a sample refers to a selected number of

respondents for the study. Denver, (2001) defines a sample as a portion of population, serving as
a basis for estimates of the attributes of the whole population. Copper and Schindler (2011) refer
to sampling as technique which gives some elements of the target population as representatives of
the whole population. The sample for the study was drawn from the universal target population
of the study, which is ZESA Holdings using probability stratified sampling technique so that the
people with the relevant information were selected.

3.6.1 Sample of study and sampling technique

ZESA holdings is composed of four subsidiaries, which it owns and provides management
services. These include Zimbabwe Power Company (ZPC), Zimbabwe Electricity Transmission
and Distribution Company (ZETDC), ZESA Enterprises (ZENT) and Powertel.

31
A sample is simply a subset of the population. The concept of sample arises from the inability of
the researchers to test all the individuals in a given population (Kothari, 2014). The main function
of the sample is to allow the researchers to conduct the study to individuals from the population
so that the results of their study can be used to derive conclusions that will apply to the entire
population. It is much like a give-and-take process. The population “gives” the sample, and then
it “takes” conclusions from the results obtained from the sample (Chancellor, 2016).

The study covered the group as a whole including its subsidiaries. The study was a quantitative
study and therefore adopted probability-sampling techniques to establish its sample of study.
Probability sampling gives every unit in the study population an equal chance of selection. It seeks
to establish a sample set, which will be representative of the characteristics of the larger population.
Four major types of probability sampling techniques are identifiable namely simple random
sampling, systematic sampling, stratified random and cluster sampling technique.

Stratified sampling falls under probability sampling and is a form of random sampling whereby
the population is assembled into two or more groups known as strata’s. The grouping will be
according to attributes, which are common among the study population. The aim of stratified
sampling is to ensure that all the specific or subgroups are represented in the sample.

In this study the author grouped the study population into three distinct subgroups which included
non-executive directors, group executive management and senior managers. From these
representatives were chosen from each strata firstly all the subjects in the non-executive and
executive management since these were few and most targeted and then randomly from the senior
management since the number was large as it included managers from all other subsidiaries. The
cognizance behind drawing these samples was primarily due to the eagerness of making an equal
representation since the two groups have had different experiences because of the problem under
study, hence these inferences cannot be possibly overlooked into validating the findings. A total
of 12 non-executive directors, 13 senior executive management and 20 senior management were
included in the sample.

32
3.7 Data collection procedure

According to Northern Illinois University, (2013), ‘data collection is the process of gathering and
measuring information on variables of interest, in an established systematic fashion that enables
one to answer stated research questions, test hypotheses, and evaluate outcomes.’ The researcher
was first given the ethical approval form by the Department of Accounting at Midlands State
University prior to conducting the research. The researcher liaised executive management who
provided the group annual reports and financial reports used in the research since these reports are
not posted on public domains since the group is a private company.

3.8 Sources of data

The study used secondary data as the only source of data for the research. Secondary data refers
to the information that already exists which maybe in the form of journals, publications and some
form of documents or internal records (Collins and Hussey, 2014). Compared to primary data,
secondary data tends to be readily available and inexpensive to obtain. In addition, administrative
data as was seen in this study tends to have large samples, because the data collection is
comprehensive and routine. Moreover, administrative data (and many types of secondary data) are
collected over a long period.

The researcher gathered data from ZESA’s group annual reports from period 2015 to 2019, which
were acquired from the company head office. In addition to the groups, financial reports the
researcher also made use of national budgets and the published statements by the Ministry of
Energy and Power Development to complement the group annual reports.

The researcher opted to use secondary data because of the following advantages as discussed
below. Firstly, secondary data sources allow for longitudinal and comparative studies. Thus, the
use of secondary data sources allowed the researcher to analyse the group’s performance over a
five-year period 2015 to 2019. Additionally, use of secondary data sources is time saving as the
researcher can gather the data remotely without having to interact with subjects whom may be
scattered all over and who may take time to respond. Finally, considering the global pandemic
Covid-19, which affected the whole world since last year the researcher, saw it imperative to use

33
secondary data sources as interaction with subjects were difficult because of company closures
and lockdowns as result of the pandemic.

3.9 Data Presentation and Analysis

The study made use of only secondary data, which was obtained from the annual reports of ZESA
holdings for a five-year period between 2015 and 2019. The data, which was in the annual reports,
was considered reliable since the financial reports had been prepared according to accounting
standards and undergone audits. Since there was no primary data collected and the main aim was
to understand the relationships that exists between the variables in the study the researcher used
correlation and regression analysis tests.

According to Mugenda and Mugenda (2010), analysis of data involves process of compiling in an
orderly manner and structure the collected data to give it meaning. To test the hypothesis, the study
used multiple regression analysis. This method was applied to measure the relationship that exists
between the independent variables (board independency, size and gender diversity) and
independent variable (corporate performance). This is in line with the research conducted by
Tulung and Ramdani (2018), Kevin and Omagwa (2017). The author in analysis and presentation
of data used IBM SPSS statistics software (version 25.0). The data or findings are reported using
tables. Results of the regression linking each independent variable to the dependent variable are
shown in the study. The regression model guiding this study is presented and explained below.

Y=  +  x +  x +  x + 
0 1 1 2 2 3 3

Whereby the above variables represent the following:

Y = Firm performance measured by return on equity (ROE)

0 = y-intercept (i.e., constant value)
1 to 4 = coefficients values of the independent variables
X1 = Board Independence
X2 = Board Gender Diversity
X3 = Board size

34
 = error term

3.10 Ethical considerations

Ethical considerations refer to moral choices affecting decisions, behavior and principles (Greener,
2008). The researcher conducted the study for academic purposes with honesty, integrity in all
respects. Before embarking on fieldwork, the researcher sought ethical clearance and approval
from the university to give the subjects confidence and assurance that the research was to be done
for academic purpose. In addition, the author sought and obtained authority and clearance from
the company (ZESA) to conduct a research on the organization before embarking on the research.

The researcher sought access to the group’s annual and financial reports from executive mangers,
which were provided to the author, and the author made sure that these reports as a whole were
kept confidential and not distributed to any other persons besides being used on this specific study.

3.11 Chapter Summary

The chapter covered the research methodology, which was used in the study, covering mainly the
research approach and design. The research employed quantitative research approach and a case
study as a research design. The research used only secondary data sources which included both
internal and external sources. The chapter also covered the sample of study and sampling
technique, where probability sampling was adopted specifically using stratified sampling. The
chapter also covered research ethical considerations to ensure that the research revolves within the
legal fraternity of the organization. All these procedures were meant to gather data to be analyzed
and presented so that meanings can be inferred and this shall be covered in the next.

35
 CHAPTER FOUR

4.0 DATA PRESENTATION, ANALYSIS AND DISCUSSION

4.1 Introduction

The study analyzed the effect on performance of the variables of directors’ composition namely
independence, size and gender diversity. The findings from the secondary data analyzed are
presented in this chapter. The presentation of data findings is depicted using tables together with
descriptive statistics.

4.2 Correlation analysis

Prior to testing the effect on performance of director’s composition, the researcher carried out
Pearson’s correlation analysis. It is a statistical test based on method of covariance used to measure
association and or statistical relationships between variables. The analysis provides information
about the magnitude and direction of relationships between variables. The limit for the Pearson’s
correlation coefficient ranges from +1 to one. Perfect positive relationship is indicated by +1 whilst
perfect negative relationship is depicted by -1. On the other hand, a zero indicates that no
relationship exists (Sandada, 2015). The table below depicts the correlation results

36
Table 3 2: Pearson correlation analysis

Correlations

BOARD
INDEPENDE GENDER BOARD
ROA NCE DIVERSITY SIZE

ROA Pearson Correlation 1 .865** .844* .387

Sig. (2-tailed) .008 .016 .519

N 5 5 5 5

BOARD Pearson Correlation .865** 1 .781** .531

INDEPENDENCE Sig. (2-tailed) .008 .003 .358

N 5 5 5 5

GENDER DIVERSITY Pearson Correlation .844* .781** 1 .480

Sig. (2-tailed) .016 .003 .413

N 5 5 5 5

BOARD SIZE Pearson Correlation .278 .531 .480 1

Sig. (2-tailed) .519 .358 .413

N 5 5 5 5

The correlation findings depicts that a positive significant relationship exists between board
independence and the performance of ZESA holdings. At 5%, level of confidence a positive
correlation coefficient of 0.865 was recorded for board independence. According to the ranges
mentioned this reflects a significant positive relationship. Independence of directors, which
advocates for a greater proportion of outside directors, enhances performance in the sense that
independent directors would be in a position to be objective and effectively monitor management
activities for the benefit of the company and reducing agency problem. This finding is consistent
with studies by Tulung and Ramdani (2018), Abdulah (2016) and Olusola & Abiodun, (2013).

37
These studies concurs that the existence of a large proportion of non-executive directors influence
positively performance of an organization.

Gender diversity is another variable that showed a significant positive relationship of 0.844 for
return on assets at 5% confidence level. This implies that presence of women in the composition
of the board impacts positively on corporate performance as measured by ROA. It is argued that
women may bring more creativity and innovation to the company thereby increasing performance
(Darmadi, 2011). Ararat et al., (2010), Li and Chen (2018), Sanan (2016) found the same results
in their studies and concluded that positive association exists between proportion of women on
the board and firm’s performance.

Additionally, a weak but positive relationship was found between board size and firm performance
using the Pearson correlation coefficient. A coefficient of value of 0.278 was recorded and this
concurs a study by Sanda et al., (2011) which posits that smaller boards are likely to be linked to
better performance than large ones.

4.3 Regression analysis

The study also used regression analysis after testing the correlation between variables. Multiple
regression analysis was used to ascertain the relationship between board independence, board size
and gender diversity and firm performance as measured by ROA.

Table 3 3 Regression and Model Summary

Model Summary

Std. Error of the

Model R R Square Adjusted R Square Estimate

1 .977a .955 .821 3.34404

a. Predictors: (Constant), BOARD_SIZE, GENDER_DIVERSITY, BOARD_INDEPENDENCE

38
The Adjusted R square in the model summary indicates the coefficient, which determines the
response of firm performance (ROA) that is brought about by a change in the independent variable.
The table indicates a 0.955 R square value which indicated that a variation of 95.55% of a change
in corporate performance of ZESA holdings is attributable to a change in board independence,
board gender diversity and bard size at confidence level of 95 per centum. The finding indicates
that 95.5% variations in ZESA performance could be ascribed to independence, gender diversity
and board size. Thus, the correlation coefficient indicative of the association between the variables.
A significant positive relationship is shown in the findings between the variables under study as
indicated by 0.977.

Table 3 4 Coefficient

Coefficientsa

Unstandardized Standardized
Coefficients Coefficients

Model B Std. Error Beta t Sig.

1 (Constant) .317 .211 -.965 .511

BOARD_INDEPENDE
.283 .023 1.332 1.143 .037
NCE

GENDER_DIVERSIT
.196 .051 -.272 -.242 .017
Y

BOARD_SIZE -.151 .018 -.189 -.733 .021

a. Dependent Variable: ROA

Table: Coefficients

Extracting data from the coefficients table above, the following regression equation is established:

Y= 0.317 + 0.283x + 0.196x + -0.151x

1 2 3

The regression equation depicts that when the independent variables, independence, gender
diversity and board size are held constant the financial performance of state-owned enterprises

39
would be 0.317. accordingly, increase in the independence of board directors (i.e. proportion of
independent directors) will result in increase in the performance of ZESA holdings by a factor of
0.283, increase in the proportion of women directors in the board of ZESA Holdings (gender
diversity) causes the performance of the company to increase by a factor of 0.196. However, it is
also noted that increase in the total number of directors (board size) results in a decline in the
performance of the enterprise by a factor of -0.151.
Return on Assets (ROA) was used as a dependent variable in the study. Independent variables
were board independence, gender diversity and size. According to the results the relationship
between board composition and corporate performance (ROA) is significantly positive (β=0.283,
p<0.05). From the five-year period studied for ZESA holding conclusions are that positive
relationship exists between existence of outside directors sitting on the board (Yasser et al., 2011).
This finding is in congruence with previous studies conducted by Coles et al., (2012) and Duchin
et al., (2010).

Additionally, the relationship between board gender diversity and corporate performance is
statistically positive and significant as shown in the table (β=0.196, p<0.05). This implies that
ZESA holdings need the existence of women in the boardroom for better performance. This
conclusion is in line with results from studies by Rovers (2011) and Ararat et al., (2010).

The results of relationship between board size and corporate performance however showed a
negative significant association with performance as measured by ROA (β=-0.151, p<0.05). This
shows that smaller boards are more likely to enhance the performance of a corporate more
compared to larger board. The findings are consistent with the argument put by Set et al., (2013)
and Sanda et al., (2011) that smaller boards are likely to be efficient in decision making and also
cheaper to coordinate in terms of low costs in terms of rewards and benefits.

4.4 Hypothesis testing

Three hypothesis were proposed in the first chapter, which were to be tested by the study. Using
the results from the statistical analysis conducted in the study and empirical literature these
hypothesis are now tested.

40
Hypothesis 1: There is a positive relationship between board independence and corporate
performance.

The first hypothesis proposed that a positive association exist that is significant between
independence of board and corporate performance. From the results of correlation between board
independence and Return on Assets, a significant positive correlation was found (r) = 0.865. Using
regression analysis, the same result was established (β=0.283, p<0.05) that the relationship is
significantly positive. Against that backdrop, we accept that the hypothesis is valid that a positive
relationship exist between board independence and corporate performance of ZESA holdings. This
means that existence of independent directors (non-executive) is important for improvement of
company performance as supported by the Zimcode (2014) which recommends appointing of a
larger proportion of outside directors.

Independent directors will be in a position to monitor objectively and independently the activities
of executive management who in most cases tend to look after their interests at the detrimental of
the company. This result concurs with the agency theory, which posits that existence of
independent directors helps to improve and enhance the performance of a firm. (Makhlouf et al.,
2017). Other studies with same conclusions include Tulung and Ramdani (2018), Ramdani &
Witteloostuijn (2010) and Abdulah (2016). Their studies also reported a significant positive
relationship between independence and corporate performance.

Hypothesis 2: There is a positive relationship between board gender diversity and corporate
performance

Pearson correlation coefficient showed a significant positive relationship with a value of 0.844. Li
and Chen (2018) and Sanan (2016) also came to the same conclusion with their opinion that
presence of women in the board affects positively the performance of a corporate. Moreover,
regression analysis showing a value (β=0.196, p<0.05) also confirms that positive relationship
exists between gender and corporate performance as measured by ROA. Thus, the second proposed
hypothesis is confirmed.

Hypothesis 3: There is a positive relationship between board size and corporate performance

Assumption of the study in first chapter was that there is significant association between board
size and corporate performance. The correlation results exhibited a positive but weak relationship

41
between the variables with a value of 0.278 at 5% confidence level. Interestingly regression results
however showed a negative significant association with performance as measured by ROA (β=-
0.151, p<0.05). The result is in congruence with studies conducted by Set et al., (2013) and Sanda
et al., (2011). These prior studies supported the idea that smaller boards are likely to be linked to
better firm performance than large boards, which are costly to coordinate, and slow decision
making. Based on this discussion the proposed hypothesis that positive relationship exist between
board size and performance of ZESA holdings is rejected. Thus, proposition by Yasser et al.,
(2011) that smaller boards have positive influence on corporate performance is upheld.

4.5 Chapter summary

This chapter covered data presentation, analysis and discussion of findings. It started with
introduction to the chapter and then went on to analyze the relationship using statistical tests
between the independent variables and dependent variable in the study to answer the research
questions and to test the hypothesis proposed. Pearson’s correlation coefficient and regression
analysis were employed and data analyzed using SPSS IBM software package. The first and
second hypothesis were accepted whilst the third hypothesis was rejected.

42
 CHAPTER 5

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction

This chapter summarizes the major findings of the research that are based from quantitative
analysis presented in the previous chapter. The chapter also sums up conclusions that are drawn
from data reported in chapter 4. It goes on to propose recommendations basing from the findings
and conclusion drawn and finally highlight areas for future or further research.

5.2 Summary

The study analyzed board composition’s effect on state owned enterprises using ZESA Holdings
as a case study. Data used was for a period of five years from 2015 to 2016. Specifically the study
identified the relationship between independence and corporate performance, established
association between gender diversity and corporate performance and lastly analyzed the
relationship between board size and firm performance. These three variables of board composition
(independency, gender diversity and board size) formed the objectives of the study in chapter1.

A case study approach was used in the study. A quantitative research approach where data sources
were secondary data was adopted. Data was collected from ZESA Holdings annual reports from
period 2015 to 2019. Complementary sources of data included national budgets and publications
by the ministry of energy. Data collected was entered into SPSS IBM software package for
analysis. Study used Pearson correlation coefficient and multiple regression analysis to analyze
the relationship between the variables in the study (that is proxies of board composition and
corporate performance. The proxies for board composition included board independence, gender
diversity and board size. The study only used accounting measure of performance as measured by
return on assets as market value based measure were difficult to apply since the group is not traded

43
on the stock exchange. The findings of this study are discussed heading theoretical findings which
links the findings of this study to previous studies results and go on to evaluate the research
objectives.

5.3 Theoretical findings

The study concluded that there is a positive significant relationship between board independence
and corporate performance (i.e. ZESA holdings). This conclusion agrees with the studies which
argued that a large proportion of independent directors in the board influence positively the
performance of a company. All these findings concluded that performance of a firm as measured
by return on assets is positively related with the independence of the board that is larger proportion
of non-executive directors. According to the agency theory perspective, performance is enhanced
in the sense that non-executive directors are objective in all dealings and offer monitoring services
without bias to the benefit of the firm as a whole.

Positive relationship was also established between gender diversity and firm performance as
measured by return on assets. The argument is that if there are women in the board, the board is
likely to be innovative and creative since women are strict. This argument is in line with Darmadi
(2011) in a study of 169 firms listed on the Indonesian stock exchange. Ararat et al. (2010), Li and
Chen (2018), Sanan (2016), Kılıç and Kuzey (2016), Dobbin and Jung (2011) were also of the
same findings that positive significant relationship exist between gender diversity using return on
assets and also return on equity.

Lastly, the relationship between size of board was found to be negatively correlated with
performance of ZESA Holdings. Prior studies argued that smaller boards influence positively
corporate performance, as they are easier and less costly to coordinate and are in better position to
accelerate decision-making process (Sanda et al., 2011).

5.4. Evaluation of research objectives

Three research objectives mentioned in chapter 1 were focused on by the study these are again
summarized below:

1. To establish the relationship between board independence and performance on SOEs

44
2. To establish the relationship between board gender diversity and corporate performance.

3. To examine the relationship between board size and corporate performance

Objective one

The study employed both regression analysis and Pearson correlation coefficient to answer the
research question and draw conclusions on the relationship between independence of the board
and corporate performance. Correlation findings showed a coefficient of 0.865 at 5% confidence
level. This reflects a significant positive correlation between the variables. Using regression
analysis same conclusion was reached that a positive significant association exists between
independence and performance of ZESA. This finding indisputably mean suggests that a company
should carefully select its boards making sure that large proportion of directors are non-executive
if its performance is to be enhanced. The findings is in line with the agency perspective that agents
tend to look out for their interest in most cases and therefore needs a board that is independent to
ensure that their activities are monitored thus reducing agency problem. The positive association
established between independence and performance is in congruence with findings from prior
studies buy Tulung and Ramdani (2018), Ramdani & Witteloostuijn (2010) and Makhlouf et al.,
2017). Thus, conclusion is that a significant positive relationship exists between board
independence and firm performance.

Objective two

Analysis done by both regression analysis and Pearson correlation coefficient showed that there is
also a significant positive correlation between gender diversity and corporate performance. Li and
Chen (2018) and Sanan (2016) also came to the same conclusion in their studies. The opinion
based on the results was that gender diversity (proportion of women in the board) is likely to be
advantageous to the firm as the board is likely to be creative and innovative. However, other studies
like Marinova et al., (2015) found no relationship between the variables. Additionally, Triana et
al., (2013) concluded that a negative relationship exists between gender diversity and performance.

Objective three

Regarding board size findings from Pearson correlation analysis established that a positive but
weak relationship between size and corporate performance. On the other hand, results from

45
regression analysis depicted however a significant negative relationship. Result that a negative
relationship exists between size and performance are in line with findings by Set et al., (2013).
and Sanda et al., (2011). There studies argued that smaller boards are cheaper to coordinate and as
a result reach decision more quickly than their counterparts. On the other hand, researchers like
Kalsie and Shrivastav (2016) concluded that larger boards ensure that the board is equipped with
members who have diverse skills and therefore they enhance performance. The conclusion of this
study was that size of the board has a negative significant relationship with performance of ZESA.

5.5 Recommendations

After analysis of data and conclusion made the following recommendations can be put forward
which will be useful to both stakeholders and the organization.

5.5.1 Recommendations on board independence

The study concluded that an independent board is beneficial to the company and increases
performance since independent directors have no bias and provide monitoring that reduce the costs
associated with agency. As a result of this finding it is recommended that state enterprises at all-
time ensure that their board is composed of a large number of non-executive directors to improve
their performance. Independence also covers CEO duality, which is the case for ZESA holdings
since 2019. Recommendation is that the position of chairperson and that of CEO should be held
by two different people.

5.5.2 Recommendations on gender diversity

Since the relationship between gender diversity and corporate performance is significantly
positive. Efforts to implement mandatory gender mainstreaming should be embarked on, as this
will influence positively on future performance of the organization.

46
5.5.3 Recommendations on board size

It was mentioned in literature review that there is board size that is considered optimum. However,
there is norm and tested example of size of the board that is considered effective. According to
Sandada et al., (2015) determination of ideal board size is very important as it affects the number
and quality of the board. In this regard, the rule of diminishing returns also applies to the board
size. Basing on the conclusion that relationship between board size and performance is negative.
ZESA should revisit its board to review if its size is the correct one and thus is not affected by the
diminishing returns rule. From the period under study, it is shown that the board comprised of
twelve people except for year 2018 where there was seven members. Recommendations by
Chinese corporate law is that board should be between seven and nine members (Liu and Fong,
2010). Additionally, Lawal (2012) suggested a board of seven to nine members.

5.6 Suggestion for further research

This study analyzed the directors’ composition’s effects on performance of ZESA Holdings a state
owned enterprises from period 2015 to 2019 employing a pure quantitative research design.
However, there are still areas that require further research as discussed below.

 The study employed a pure quantitative research design to establish relationship between
board composition proxies and firm performance. It would be of significance if similar
studies are done using the qualitative approach or mixed approach such that a more in-
depth understanding of the variables and their relationships can be extracted.
 This study was conducted as a case study, which mean that results can to be inferred to
other state owned enterprises, which are scattered in various industry sectors. The
researcher call upon researchers to conduct the study on a sample of an number of state
owned enterprises such that the results can be more conclusive and therefore spread to all
state owned enterprises.
 Moreover, the study only focused on board independence, board gender diversity and board
size, which are only a fraction of the characteristics of the board. Future research could
also analyze relationships associations of other proxies such as skill diversity, age diversity,
CEO duality to see how they affect corporate performance.

47
 Finally, the study only focused on one performance proxy return on assets, which is an
accounting based measure. Future studies could also be conducted in Zimbabwe using
other accounting based measures such as return on equity, Profit before interest and tax
and return on sales. Additionally, market based measures could also be employed such as
the popular Tobin’s Q.

48
References

A. A. Zaid, M., Wang, M., Adib, M., Sahyouni, A. and T. F. Abuhijleh, S. (2020), “Boardroom
nationality and gender diversity: Implications for corporate sustainability performance”,
Journal of Cleaner Production, Vol. 251, p. 119652.
Ahmadu U. Sanda (2011), Board Independence and Firm Financial Performance: Evidence from
Nigeria, African Economic Research Consortium (AERC).
Alabdullah, T.T.Y., Ahmed, E.R. and Yahya, S. (2018a), “The determination of firm performance
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 APPENDIX 1-LETTER FOR REQUESTING DATA

Midlands State University

FACULTY OF COMMERCE
DEPARTMENT OF ACCOUNTING

ZESA Holdings
Department of Finance
Harare

Date: 10 February 2021

Dear Sir/Madam

I am a postgraduate student at Midlands State University (MSU) studying towards a Masters

of Commerce in Accounting Degree. The title of this research project is: An analysis of board of
directors composition’s effects on performance of state-owned enterprises: A case of ZESA
Holdings
I write to you to kindly request from your offices annual financial reports from period 2015 to
2020 for aiding my study. You are assured that information obtained from those reports will be
strictly used for academic purposes specifically completion of this dissertation. Any information

53
that might be sensitive will not be displayed in this dissertation except summary analysis of data
from your company’s reports.

If you have any questions concerning whatever you feel deserves my attention about
this research study contact me on +26377 7115 215 or through my e-mail
chamunorwamapuranga@gmail.com

Yours faithfully

Chamunorwa Mapuranga

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APPENDIX 2 – SIMILARITY INDEX REEPORT

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