The Moderating Effect of Firm Characteristics on the Relationship between Corporate Governance and Financial Performance of Business Enterprises in Uganda

Abstract

Purpose: This study aimed to establish the moderating effect of firm characteristics on the relationship between corporate governance and the financial performance of companies in Uganda. Materials and Methods: The study applied a positivist paradigm and a cross-sectional design. Data were obtained from a sample of 394 private companies drawn from central and western Uganda. Companies were stratified by region, sectors, and subsectors; and then selected using simple random sampling from each stratum. A structured questionnaire was distributed to board members, Chief Executive Officers, accountants, Internal Auditors, and managers who were selected purposively. Principle Component Analysis and varimax rotation were employed for data extraction and reduction. The hierarchical regression technique was employed for data analysis. Findings: The study results confirmed firm characteristics moderate the relationship between corporate governance and the financial performance of companies in Uganda. The interaction term was found to be enhancing, with the moderator strengthening the effect of corporate governance on financial performance. Implications to Practice and Policy: From the results, it is deduced that besides ensuring an effective governance system, managers and owners of private limited companies should pay more attention to enhancing firm attributes such as size, age, and reputation.