Final Complete Document Corporate Governance Improves Firm Performance In Construction Companies In Tanzania

THE UNIVERSITY OF DAR ES SALAAM

COLLEGE OF ENGINEERING AND TECHNOLOGY

DEPARTMENT OF STRUCTURAL AND CONSTRUCTION ENGINEERING

A PhD Research Proposal

TITLE: CORPORATE GOVERNANCE AND FIRM

PERFORMANCE IMPROVEMENT: CASE OF REGISTERED

COMPANIES IN TANZANIA.

NAME OF RESEARCHER: Eng. Peter S. Assenga

UNDERDRADUATE DEGREE: BSC-Civil Engineering (University of Dar es

Salaam),

POSTGRADUATE DEGREE: MSC-Structural Engineering (Beijing-China)

REG. No… 2014-07-00023………………..

NAME OF SUPERVISORS: 1. DR. MATIKO SAMSON

2. DR. RAMADHAN S. MLINGA

PROPOSED DEGREE: PhD. (Construction Management)

Date: Oct, 2014.

Abstract

Corporate governance involves a set of relationships between a company’s management, its

board, its shareholders and its stakeholders. It is only part of the larger economic context in

which firms operate. For example, macro-economic policies and the degree of competition

in markets. Corporate governance framework also depends on the legal, regulatory, and

institutional environment. Another key driver for public policy involvement in corporate

governance is the viability of pension fund systems, which increasingly depend on equity

markets and the preservation of private savings for retirement. Corporate governance

assists in the strengthening of the overall international financial system and reduces the

vulnerability of emerging markets to financial crisis. (World Bank Group- ROSC).

Corporate Governance practices and principles depend on economic situation, political,

legal and business practices. CG therefore is a key emerging business concept in the

developing countries. International Finance Corporation (IFC) defines corporate

governance as the system by which companies are directed and controlled. Sound corporate

governance is an important element of sustainable private sector development. It improves

business performance and strengthens businesses’ ability to attract investment and to grow,

it also makes them more sustainable and accountable. Good corporate governance help a

company/financial institution to: enhance performance, operations, efficiency, profitability

and long-term value, grow in a sustainable manner, establish clear roles, responsibilities

and accountabilities, define and implement corporate strategy and direction, identify and

manage risks, become more competitive environment attract capital, investment and

business partners and build reputation and trust through the strengthening of relationships

with relevant stakeholders Both qualitative and quantitative data collection methods will be

used to enhance realization of strangulation effect. Focused Group Discussion guides, Key

Informant Interview guides and Questionnaires with closed and open ended questions will

be used. As such, necessary ethical considerations such as permission from research

authorities in the study will be observed. However, following the sensitivity of the topic

consent, assent and confidentiality will be strictly observed. Data analysis will be done

using SPSS version 17.0, graphs and charts will be used to display results to ease

interpretation. The results and recommendations will be disseminated appropriately.

iii

Table of Contents

Abstract ........................................................................................................................................... ii

Table of Contents ............................................................................................................................iii

Glossary of Terms ........................................................................................................................... v

SYNOPSIS .................................................................................................................................... viii

Proposed Structure of Dissertation ............................................................................................... viii

CHAPTER ONE ................................................................................................................................. 1

1.0 Introduction ............................................................................................................................... 1

1.1 Background of the Study .......................................................................................................... 1

1.2 Corporate Governance .............................................................................................................. 1

1.3 Capital Structure ....................................................................................................................... 2

1.4 Firm Performance Improvement ............................................................................................... 3

1.5 Rationale ................................................................................................................................... 4

1.6 Research Problem and Hypotheses ........................................................................................... 7

1.6.1 Research Problem .................................................................................................................. 7

1.6.2 Aim of the Study .................................................................................................................... 8

1.7 Research Objectives .................................................................................................................. 9

1.7.1 General Objective .................................................................................................................. 9

1.7.2 Specific Research Objectives ............................................................................................... 10

CHAPTER TWO .............................................................................................................................. 11

2.1 Theoretical Framework ........................................................................................................... 11

2.2 Agency Theory........................................................................................................................ 11

2.3 Free Cash Flow Theory ........................................................................................................... 11

2.4 Research Hypotheses .............................................................................................................. 12

2.4.1 Empirical Studies on Corporate Governance and Firms Performance ................................ 12

2.4.2 Corporate Governance on Capital Structure in Performance Improvement in the

Construction Industry in Tanzania ................................................................................................ 14

2.4.3 Effect of Capital Structure on Firm Performance ................................................................ 15

2.4.4 Effect of Corporate Governance on Firm Performance Improvement ................................. 16

2.5 The Conceptual Framework .................................................................................................... 17

2.5.1 Research Hypotheses ........................................................................................................... 18

CHAPTER THREE .......................................................................................................................... 20

3.1 Research Design...................................................................................................................... 20

3.2 Target Population and Sampling ............................................................................................. 20

3.3 Data Collection ....................................................................................................................... 20

3.4 Research Methodology ........................................................................................................... 20

3.5 Relating the Variables ............................................................................................................. 21

3.6 Limitations of the Existing Literature ..................................................................................... 21

3.7 Knowledge gap and the Significance of the Study ................................................................. 22

3.8 Empirical Methodology .......................................................................................................... 22

3.9 Panel Data ............................................................................................................................... 23

3.10 Random Effects ..................................................................................................................... 23

3.11 Research Instruments............................................................................................................. 24

3.12 Pre-Testing ............................................................................................................................ 24

3.13 Validity ................................................................................................................................. 24

3.14 Reliability .............................................................................................................................. 24

3.15 Data Analysis and Presentation ............................................................................................ 24

3.16 Logistical and Ethical Consideration .................................................................................... 25

4.0 References ............................................................................................................................... 26

5.0 Appendices .............................................................................................................................. 28

5.1 Appendix 1: Proposed work plan for the research process 2015 ............................................ 28

5.2 Appendix 2: Budget Proposal for the Research ...................................................................... 28

5.3 Appendix 3: Consent............................................................................................................... 29

5.4 Appendix 4: Questionnaire ..................................................................................................... 32

Glossary of Terms

Accountability- This is the unavoidable duty to explain the ways in which an individual or

group has carried out, or caused to be carried out, the obligations placed upon him

or them by law, a governing body or constitutional document.

Acquisition- The purchase of an asset e.g plant or a company.

Annual Report -The formal financial statement issued yearly by an organization. The

annual report shows assets, liabilities, revenues, expenses and earnings, how the

organization stood at the close of the business year, how it fared profit-wise during

the year, as well as other information of interest to shareholders.

Audit- An inspection of an organization’s accounts.

Audit Committee – A committee of the board of directors, with responsibility for a range

of audit-related issues, and in particular the conduct of the external audit and the

company’s relationship with its auditors.

Audit Committee - Terms of Reference Executive Committee - A committee of senior

executives who are appointed, usually by the governing board, with authority to

manage the day to day affairs of the organisation concerned.

Authority- The right of an individual or entity to do something.

Benchmarking- The process of recognizing and examining the best practices of other

organizations in the same line of business, and using the knowledge gathered as the

basis for improvement in all aspects of the organisation.

Best Practice- Examples of procedures, policies and operational activities that are

considered to be the attainable standard to which entities in a particular sector

should strive to achieve.

Board- A group of elected or appointed individuals who are collectively responsible for the

governance and strategic direction of an organisation.

Board Performance/Evaluation - The periodic review to assess the performance of the

board (and individual directors) either by itself (self-assessment) or by a third party,

and indicate where improvements can be made.

Budget -A plan, expressed in financial terms, proposed by the organisation, senior

management team or board, for the purpose of carrying out, for a specific period,

any or all of the functions of the organisation.

Budget Holder - The director or employee with delegated authority to manage finances

(both income and expenditure) for a specific area of the organisation.

Business Plan- A detailed plan setting out the objectives of an organisation over a stated

period (and how they will be achieved), including financial and non-financial

activities/goals.

Certificate of incorporation- A certificate issued by the Registrar of Companies upon the

registration of a company.

Committee- A group of individuals who receive and consider reports from a third party

and present the findings to a superior body.

Director- An officer of an organisation responsible for determining policy, supervising the

management of the company’s business and exercising the powers of the company.

Executive Directors - Working directors (usually full-time). In most instances they have

service contracts which, as well as their employment details, will set out their

executive and management functions such as responsibility for production, finance,

marketing, human resources and health and safety management team.

Financial Accounts - Statements prepared to summarize the overall financial progress of

an enterprise, whether prepared for managers, owners, creditors or any other

interested party.

Financial Planning - The formulation of short-term and long-term plans of an organisation

in financial terms.

Independent Directors – ‘Non-executive directors who should be independent of

management and free from any business or other relationship which could

materially interfere with the exercise of their judgment’.

Legislation - Written laws governing individuals’ and organisations’ actions with respect

to both specific and general business and civil activities.

vii

Nominations Committee - The Combined Code states that: ‘There should be a formal,

rigorous and transparent procedure for the appointment of new directors to the

board.’

Non-Executive Directors (NEDs) – Directors who are not also employees of the company

and only have to devote part of their time to its affairs. They do, however, have the

same statutory duties and function as any other director.

Power - Ability to exert authority, control and/or influence over something and/or

someone.

Shareholder – An individual or entity which owns a share of the company’s stock,

generally referring to common stock.

viii

SYNOPSIS

(1) Structure and References

(2) Source of Theory

(3) Empirical Methodology

(4) Data procurement issues

(5) General – conference dissemination & professional societies

Proposed Structure of Dissertation

In order to provide a basis for this investigation the structure of this chapter is organized as

follows: Section 1: Introduction, 1.1 provides an overview of the background of the study;

Section 1.2 explains the relationship of corporate governance practices with firm

performance; Section 1.3 presents the aims of the study; 1.4 presents objectives of the

study, Section 1.5 presents the conceptual framework to conduct the study; Section 1.6

presents the methodology to be used; Section 1.7 discusses the limitation of existing

literature; Section 1.8 explains the contribution to knowledge and significance of the study;

and Section 1.9 describes the organization of the thesis.

To investigate the reasons for the effectiveness of corporate governance in the context of

Tanzania, this study will firstly examine literature on the relationship between board

structure, management and firm performance improvement. It will then examine the

accountability to shareholders and other stakeholders through corporate framework system.

CHAPTER ONE

1.0 Introduction

1.1 Background of the Study

Tanzania has integrated long-term development strategies aimed at enhancing

sustainable economic and human development as a pre-requisite for developing nations

by the year 2015. However, it envisages creation of corporate governance to build

resilient, strong, diversified economy that is able to effectively compete regionally and

internationally as far as changing technology and market demands are concerned in the

construction industry (Aguilera & Jackson, 2010, 486). In achieving the effective firm’s

performance, Tanzania’s construction industry has made it a priority to identify corporate

governance as an essential catalyst for attaining their goals. For example, corporate

governance enhances in-depth understanding of prevailing infrastructure thus improving

it as an important ingredient towards enhancing faster economic development in a

country (Oman, 2001, 39).

However, the integration of corporate governance in the construction industry

permeates smooth running of processes within the industry being that it transforms

resources into tangible physical economic and social work infrastructure (Malherbe and

Segal, 2001, 18). This is very crucial for economic development since it integrates proper

planning, budgeting, procurement, construction, alteration, repair, demolition, and

maintenance in the construction industry in Tanzania. Thus construction firms in

Tanzania should fully embrace corporate governance to develop reliable and competitive

profiles that enable them thrive well through delivering quality services and also

providing value for money (Oman, 2001, 35).

1.2 Corporate Governance

Corporate Governance is a comprehensive overview rated among the most

important and controversial topics today. However, in relation to improving firms’

performance in the construction industry, there is need for sound corporate governance

(Malherbe and Segal, 2001, 22). This would enhance information sharing on what is best

for the industry especially in investment decision in order to protect firms’ from disasters

and/or scandals. In addition, according to (Okeahalam, 2002, 20), corporate governance

operates differently within the global scope. This is based on relative power of managers

and owners who actively participate in provision of capital and finance. Hence the need

to ensure that accountability and transparency is enhanced through good leadership to

steer policy implementation. In addition, this would enhance integration of mechanisms

that limits principle agent conflict (Okeahalam C.C., 2002).

The integration of cooperate governance allows firms in the construction industry

to use alternative internal and external mechanisms to accomplish laid down objectives.

For example, in external mechanisms include board composition, non-managerial

shareholding, and managerial ownership and institutional shareholding, while external

mechanisms include; the markets for corporate controls, statutory audits as well as stock

market evaluation for corporate performance (Mensah, 2001, 29).

1.3 Capital Structure

In exploring corporate governance, it is imperative to explicate capital structure

since it refers to strategies adopted by corporation to finance its assets through equity and

debt combination. Studies indicate that capital structure irrelevance and corresponding

tax shield advantage is effective in paving way for development of theories (Bruton,

Chahine and Filatotchev, 2009, 910). As such, Modigliani and Miller (1958, 281)

reiterated that for any firm, optimal capital structure will include prevailing trade-offs

among effects of personal and corporate taxes, agency and bankruptcy costs. In respect to

construction industry like any other industry, separation of ownership and firms’ control

may result in managers exerting insufficient fork efforts since the management is likely

to operate within limits (Malherbe and Segal, 2001, 28). Thus affecting areas like

prerequisite, inputs or outputs that suits managers’ own preferences, and/ or failing to

fully maximize firm value.

Now, considering agency cost of outside firm’s ownership, lost value from

professional managers to maximize their utility rather than that of the value of the firm

(Bruton, Chahine and Filatotchev, 2009, 910). Theories suggests that type and choice of

firm may be helpful in in mitigating agency costs. It could be hypothesized that under

urgency costs, low equity/asset ratio, or leverage reduces agency costs of outside equity.

Hence increases firm’s value through encouraging managers to act more or be

constrained in the interest of shareholders especially in construction industry (Malherbe

and Segal, 2001, 20).

1.4 Firm Performance Improvement

In exploring firm performance, much focus should be based on value of the firm.

That is why it is appropriate to assert that corporate governance affects firm’s value based

on reduced expropriation by internal management thus improving in value of expected

cash flow which could be distributed to investors (Matembe, 1999, 23). To evaluate firm

performance in the construction industry, there is need for determining constituents of

good performance especially through integration of performance indicators. As such, in

order to be used, performance indicator must be important to an organization, relevant

and measurable (Bruton, Filatotchev, Chahine and Wright, 2010, 492). In empirical

research, financial performance used on capital structure should fit both market-based

and accounting-based measures. It is exemplified in research that the most commonly

used market-based measure includes Tobin Q, while accounting-based measures include

but not limited to Returns On Assets (ROA).

In the construction industry, in order to analyze the relationship between market-

based and accounting-based measures, firm performance plays a great role based on

shareholders equity which is also important in explaining efficiency of firm’s

management (Aguilera & Jackson, 2003, 448). Firm performance improvement is

affected by corporate governance practices of firms in Tanzania, because their success or

failure is dependent on the extent to which they are managed. Good corporate governance

practices enhance firm performance through better management and prudent allocation of

firms’ resources. Earnings resulting from increased performance, contributes significantly

to share prices. Therefore good corporate governance practices can increase the demand

for shares as well as increase the price of shares of a company (Malherbe and Segal,

2001, 36).

OECD (2010, 18) urges that knowing what your competitors are doing, and how

to respond, is clearly important to a firm's success. Okeahalam (2002, 17 revealed that

excellence in company performance derives from enablers that include leadership,

people, resources, processes, and actions. Managers need to focus on such critical

internal operations to enable satisfactory realization of customer needs. The new focus

emphasized measures that integrated key business processes. The internal measures can

include productivity, safety, quality, and business efficiency and effectiveness. The

study revealed that the financial perspective included four measures that received high

ranking by respondents, namely profitability, growth, financial stability, and cash flow.

Profitability is found to be the most important KPI for the construction company

managers (OECD, 2010, 21).

Fig.2 Measures of Financial perspective

1.5 Rationale

It is explicit to state that the issue of corporate governance has become a popular

discussion topic in developed and developing countries. The widely held view that

corporate governance determines firm performance and protects the interests of

shareholders has led to increasing global attention. However, the successes realized by

firms that integrates corporate governance is often based on country per se depending

on economic, political and social contexts. For example, firms in developed countries

have dispersed shareholders and operate within stable political and financial systems,

well developed regulatory frameworks and effective corporate governance practices.

Conversely, performance of firms that operate in developing countries, for

example countries in the Great Lakes Region including Tanzania has been affected by

political instability, influx of refugees, frequent attack from religious extremists, rebels

and militants resulting in severe economic dislocation and sharp escalation in defense

expenditure, which results into widening fiscal deficit and weakening the stability of

local currency. The study seeks to explicate the fact that corporate governance enhance

firm performance improvement through case studies on Tanzania’s registered

construction companies.

In Tanzania, apart from weak regulatory and institutional frameworks,

increasing fuel prices, overvalued exchange rates and rising inflation have been

growing macroeconomic problems that were further worsened by the revealing of large

financial mismanagement scandals (Aguilera & Jackson, 2003, 451). The National

power utility company TANESCO’s performance in recent years faced continuous

scandals and unresolved cases from RICHMOND, DOWANS, ESCROW, IPTL, etc.

resulting in donors declining to support our economic programs and global finance

crisis (GFC) also affected the performance of firms.

Construction industry is the fastest growing sector of economy in Tanzania.

Construction activities are performed by registered firms as well as individuals. Firms

are registered and monitored by The Ministry of Works under the agency of CRB-

Contractors Registration Board. According to CRB, some construction firms failed to

perform and subsequently deleted from the registration by Jan, 2015 as follows:

 Deletion due to fail to comply with registration criteria

Building=158, Civil= 154, Electrical=35

Mechanical=8, Specialist=25, Foreign=5

 Deletion due to non-performance=6. (www.crb.go.tz)

Ministry of Works (MOW) deal with construction activities of road network and

Government buildings in Tanzania among other things and 4% of annual government

budget in 2011/2012 has been spent. However, performance of big companies in

Tanzania are not doing well due to various reasons like management crisis,

procurement problems are some of the reasons as shown in Table 1. Below:

No.

Company

Ownership

Condition

Remarks

TAZARA

China, Tanzania &

Zambia

governments.

Management crisis.

Frequent delay of salaries.

Unreliable

traveling time

table

Tanzania

Railways

Tanzania

government

Procurement crisis-

procurement of defective

items, receive subsidy

from the Government.

Unreliable

traveling time

table.

Air

Tanzania

government

Management crisis.

Frequent delay of salaries.

Unable to cover the local

market.

Business is not

growing.

Harbours

authority

Tanzania

government

Misappropriation of funds.

Procurement problems.

Frequent loss of

customer’s

properties.

Tanesco

Tanzania

government

Dubious contracts leads to

huge loss.

Frequent power

cut.

Table 1. State of some of State owned companies.

1.6 Research Problem and Hypotheses

1.6.1 Research Problem

Globally and nationally, many construction companies do not perceive it

important to integrate corporate governance in their firms. This has been a challenge

since most of the companies/ firms in the construction industry do not keep clear and

transparent records of activities within their firms (Mwapachu, 2001, 20). As such, many

shareholders have a lot of funds and machinery among other capital to invest in

construction firms but without elaborate and transparent record keeping and auditing, it

has become bleak and inappropriate to entrust a third party with huge resources. Thus the

need for the study to explore the main hindrance that inhibit construction firms from

successful integration of corporate governance in Tanzania.

There has been heated debates and great empirical investigation on impacts of

corporate governance on firm performance within the construction industry. Corporate

governance is rated among researches done in business economics since Adam Smith’s

seminal publication in 1776, which was based on inquiry into the cause and nature of

wealth of nations and undoubted impetus given. However, the author strived to create

distinct differences between control and corporate ownership (Berhanu and Samuel,

2008, 26). As such, it is exemplified that as stated earlier in the study background,

separation of control from ownership in a firm is likely to result in managers subjected to

limited control of their duties, thus exerting insufficient work effort especially when

choosing input and output, and indulging in prerequisites that they perceive to suit their

own performances. This makes it difficult to fulfil or maximize their own utility, rather

than focusing on what could enhance value of the firm. The agency costs would be

mitigated through corporate governance and capital structure. Hence it is realistic to state

that corporate governance is an important factor to consider to improve firm’s value and

performance. Research indicate that corporate governance impacts different countries

differently based on distinct structured adopted by countries based on dissimilar social,

economic and regulatory considerations and conditions.

Conversely, global corporations like World Bank and Bank of Credit and

Commerce International (BCCI) based in the UK, US and France among other sub-

branches often stimulate interests in corporate governance (Aguilera & Jackson, 2010,

487). Most of the common challenges faced by international corporations is the

increasing rate of financial mismanagement, corruption and also government

subsidization for failing enterprises (Aguilera & Jackson, 2003, 453). However,

narrowing down to East and Central Africa, there has been attempts to address corporate

governance challenges through adoption of privatization policy. Research indicate that

governments are also to blame on laxity in implementing policies leading to governance

crises. For example, there is weak regulatory and legal systems, double standards/

inconsistency in auditing and accounting standards, as well as poor banking practices

(Mwapachu, 2001, 41). There is always thin and poorly regulated agreements between

local construction companies and corporate governance.

It is somewhat true that not all government officials are transparent in handling

corporation deals between investors and local construction firms in the country

(Tanzania). According to World Bank (2000), there has been ineffective oversight

corporate boards of directors with little regard for minority investors and shareholders in

corporate governance. Research indicate that frequency of board meetings is a proxy for

corporate governance in the construction industry since it enhances transparency leading

to improved firm performance. In a nutshell, when board meetings are conducted

frequently, there is likelihood of follow-ups in case there is poor performance, and as a

consequence, firm performance improve due to better communication between

management and directors. This lead to research question that: What is the effect of

corporate governance on firms’ success in the construction industry in Tanzania?

1.6.2 Aim of the Study

As defined earlier, corporate governance involves the process of developing

cost-efficient corporate governance structures for an organization and instituting "best

practices" by weighing costs against benefits. This is accomplished by analyzing

specific risks of organization, making cost-benefit judgments, and utilizing the lessons

of past corporate scandals, performances, complying with established regulations and

align with financial institutions. It rejects the mindless "check-the box" mentality of

corporate governance rating groups and some major accounting firms (DiMaggio &

Powell, 1983, 148). Rather, the focus is on specific risk analysis, a cost-benefit

analysis, and learning from the past (Lipman et al. 2006, 43).

The study will focus in the following main issues:

i) To identify key areas that makes Tanzania firms to perform below International

Standards, deleted from registration boards, enter into unsolved disputes,

survived in market for short times, e.t.c, and design the framework to be

adopted for the purpose of improving the performance of our firms (Mensah,

2001, 28).

ii) To analyze the firm’s ability to work on organization’s principles in respect to

integrate the responsibility of the board of directors, management, shareholders

(corporate governance triangle) to the benefit of stakeholders and public in

general. Fig.3.

iii) To identify key weakness areas in context of Tanzania social and culture issues.

iv) To determine general risks involved in Tanzania corporate governance and how

to mitigate risks (DiMaggio & Powell, 1983, 149).

1.7 Research Objectives

1.7.1 General Objective

The introduction of corporate governance practices in Tanzania aimed to

provide a mechanism to improve investor confidence and trust in management and

promote economic development of the country. However, efficiency of the corporate

governance structures and practices on corporations operating in the highly volatile

environment of Tanzania has not been empirically investigated (Aguilera & Jackson,

2003, 460). Apart from the aim of the study mentioned above, the researcher will study

in order to understand the governance practices that contribute to enhance the value of

listed companies in Tanzania, the study broaden to: Explore the efficacy of corporate

governance practices, which affect firm performance improvement resulting in

accountability to shareholder and other stakeholders through appropriate corporate

working practices, which enhances the value of the firms of listed companies in

Tanzania.

Research indicates that there is relationships between corporate governance

practices of board structures (consisting of leadership, composition and committees)

and corporate firm performance of listed companies in Tanzania (Okeahalam, 2002,

41). Therefore this study examines the relationship between corporate governance

practices and firm performance in Tanzania, as a result of the adoption of code of best

practice on corporate governance and the extent of changes to corporate governance

practices.

1.7.2 Specific Research Objectives

i. To examine the effect of corporate governance on firm performance in

construction industry in Tanzania.

ii. To evaluate the effect of corporate governance on capital structure among

construction companies in Tanzania.

iii. To determine the effect of capital structure on firm performance among firms in

Tanzania’s construction industry.

iv. To determine the intervening effect of corporate governance on firm performance

improvement among selected case-companies in construction industry in Tanzania.

CHAPTER TWO

2.1 Theoretical Framework

Now, considering corporate governance and capital structure, it is imperative to

state that firms’ performance in the construction industry is based on agency theory and

free cash flow theory. As evidenced from previous empirical research studies, the two

theories mentioned will confirm effect of corporate governance on performance

improvement in the construction industry in Tanzania (Bruton, Chahine and Filatotchev,

2009, 912).

2.2 Agency Theory

In the past, corporate governance has often been traditionally associated with the

“principal- agent” or “agency” paradox. As such, a principal-agent relationship is a

specific kind that arises when a person owning a company/firm is not similar to the

person managing or controlling the firm. Research indicate that agency theory has its

roots integrated in economic theory as was developed by (Modigliani and Miller, 1958,

267). It however states that shareholders or principals are the owners of a company who

delegate running of firm to the managers or agents. It is obvious that shareholders expects

managers to act and make decision in the principal’s interest, although at times managers

find it difficult to do so leading to contrary decisions (Bruton, Chahine and Filatotchev,

2009, 914).

In the global scope, issues of separation of ownership and control has resulted into

numerous problems since managers who act as agents do not always in the best interest

of owners or shareholders. This however, is based on conflict of interest between owners

and agents of the firm. In addition, agency costs form part of agency problems; which is

defined as cost of separation of control and ownership (Okeahalam, 2002, 62). As such,

research indicates further that agency costs could also be defined as the sum of

monitoring expenditure by the principal, the residual costs and the bonding expenditures

costs.

2.3 Free Cash Flow Theory

Modigliani and Miller (1958, 268) affirmed that free cash flow theory leverage

itself and can effectively be used as a monitoring mechanism thereby greatly reducing

agency problems. This is effective in increasing firm’s value through reduction in agency

costs of free cash flow. As such, there are some consequences that could be derived if a

firm is employing high level of leverage in firm managers since they will not be able to

invest in new projects which are non-profitable to the shareholders (Bruton, Chahine and

Filatotchev, 2009, 918). Unless otherwise, doing so would not generate cash flows to the

firm. This means that managers who allow for non-profit making projects might fail in

paying the fixed amount of interest on debt or principal when its repayment is due. In

addition, such ventures might cause inability to generate profit in a certain financial year,

a fact that might result into failure to pay dividends to firm shareholders.

However, it is a reality that leverage might not be able to only reduce agency cost

of free cash flow, but also enhance the firm to increase manager’s efficiency. This could

be explained through debt market which is likely to function as an effective monitoring

tool for the capital market (Mensah, 2001, 19). However, it is a reality that construction

industries like any other industry obtains debt financing, which require that managers

must showcase their ability and efficiency in firm’s management. It is empirically proven

that leverage proxied by bank lenders could be used as substitute monitoring mechanism

for weak corporate governance, although not in a more active merger environment

between construction firm and corporate organization.

2.4 Research Hypotheses

2.4.1 Empirical Studies on Corporate Governance and Firms Performance

Based on agency theory by Modigliani and Miller (1958, 269), the relationship

between agent and principal is that agents are hired by the principal to manage the firm,

but they not necessarily make decisions in the best interest of the firm owners. However,

as managers of construction firms like any other firm engage in value decreasing

activities, they also decrease firm’s profitability, therefore integration of corporate

governance is essential in enhancing firm’s value. This is characterized by reduction in

activities that do not add value to the firm.

Accordingly, (Ayogu, 2001, 10) also reiterated that when a firm is better-

governed, it is authentic and also more likely to invest in profitable projects, which

results in more effective operations and expectation of high future cash flow. It is

imperative to consider research done by (OECD, 2010, 32), which explicated that

relationship between board composition and corresponding board size greatly impacts

firm’s performance. Basing the study on one task of boards in construction firms, hiring

and firing of CEO, firm’s CEO often prefers a less independent board while the board

prefers to maintain its independence. Hence most of the constriction firms in Tanzania

are affirmed to be pressured by institutional investors and shareholder activists of late to

ensure that directors with different backgrounds and expertise are selected (Bruton et al.,

2010, 495). This is based on assumption that greater diversity of Board of Directors

(BODs) is important to reduce less insular decision making processes with great openness

to change.

Leadership can increase competitiveness within a firm since there is room for

selection of best options from a variety of viewpoints and ideas. Hence attracting a large

base of employees and shareholders so that existing and potential gain of new customers

would be retained. It implies that, board composition is not related to firm performance,

while board size has adverse relations to corporate performance. But, it is true that

following the literature above, both board composition and size are great impetus to

quality of decision making in board meetings, while CEO replacement and executive

compensation.

Charles and Oludele (2003, 20), argued on the same note, that corporate

governance and firm’s performance are driven by characteristics of a common firm, some

of which are neither observable not measurable. Managers of firms especially

construction firms tend to hold large ownership stakes (which has been affirmed as a

mechanism to avert or combat agency problems) in high-growth and high risk firms to

signify their commitment through equity based remuneration (Okeahalam, 2002, 73). In

addition, it is right that insider ownership is likely to increase automatically after increase

of a period of high performance. The spurious correlation does not entail any explicit

impact of insider ownership. But, it is affirmed from (Ayogu, 2001, 43) that internal and

external corporate governance has significantly positive relations with firm’s

performance. Hence the first hypothesis states in the null form is that:

H1: There is no significant relationship between corporate governance and firm

performance in the construction industry in Tanzania.

2.4.2 Corporate Governance on Capital Structure in Performance Improvement in the

Construction Industry in Tanzania

Corporate governance and capital structure are varied and conversely

inconclusive. In an organizational work environment, (Ayogu, 2001, 32) argue that there

is significant relationship between board size and capital structure. In addition, firms

which have low leverage or debt ration have large board membership. Firms with large

board members translates into strong pressure derived from corporate board leading to

pressure on managers so as to lower debt ratio or leverage (DiMaggio & Powell, 1983,

151). Company values are raised through large board size entrenched due to superior

monitoring by regulatory bodies. Further research by Ayogu (2001, 33) indicate that

firms with higher leverage rather have more directors from outside while firms with

lower leverage have low percentage of outside directors.

Considering capital structure of a company, board of directors plays essential role

in decision making in compliance with corporate governance code of best practices.

There exists significant evidence on negative relationship between capital structure and

size of board of directors, and there is an opposite finding on the association between

leverage and CEO duality. It implies that large boards adopt low debt policy, with the

CEO as the board chairperson tens to employ high debt proportion. In addition,

Modigliani and Miller (1958, 272) also explicated benefit of debt in reducing agency

costs of free cash flows. This is possible especially in situations where the firm

substantially generates free cash flow making severe the existing conflict between

shareholders and managers.

In the, real world debt could be argued to serve as a bonding or commitment

device that reduces the free cash flow available to management. In furtherance, Ayogu

(2001, 55) explicates that entrenched CEOs often seek to avoid debt. In circumstances

whereby managers do not experience discipline from control mechanism and corporate

governance, for example; monitoring by board, threat of takeover or dismissal, and also

compensation based performance incentives, managers may prefer less leverage or

possibly adjust it slowly because they dislike performance associated pressure and also

commitment to repay debt and additional interest on it in the near future (Matembe, 1999,

12).

In furtherance, Matembe (1999, 19) affirmed that large boards exerts pressure on

managers in order for them to follow lower gearing levels of enhancing firms’

performance. Moreover, Ayogu (2001, 34) explicated the existing relationship between

capital structure and corporate governance in Ghanaian Small and Medium Enterprises

(SMEs) through multivariate regression analysis, which proved evidence about adverse

relationship between board size and leverage ratio, while SMEs with large boards were

found to generally have low level of gearing. Thus in the case of Tanzanian construction

firms, the second hypothesis stated in null form is:

H2: There is no significant effect of corporate governance on capital structure as

far as performance improvement is concerned in the construction industry in

Tanzania.

2.4.3 Effect of Capital Structure on Firm Performance

According to Modigliani and Millar (1958), it could be stated that capital

structure is the mix between equity capital and debt maintained by a firm. However,

organization financing is of high importance to the fund providers and firm managers as

well. Thus Ayogu (2001, 42) argued that in case existing tax sheltering benefits increase

is equal to bankruptcy costs, then optimal capital structure could be attained. Managers

within firm should be able to effectively identify conditions when optimal could be

attained and strive to maintain it at that level. In this regard, Modigliani and Miller (1958,

274) affirmed that managers are often not optimistic in farm management in the quest to

maximize returns to shareholders. Thus resulting into indulgence in non-profitable

investments, even though such investments are likely to lead to losses for shareholders

(Aguilera & Jackson, 2003, 463).

It is unrealistic that managers often strive to use free cash flow available to fulfil

their selfish interests instead of investing in profitable projects with Net Present Values

for the benefit of shareholders. In the presence of free cash flow, Modigliani and Miller

(1958, 277) argued that agency costs is likely to exacerbate in the firm. Therefore, in

order to mitigate agency conflict, Karugor (2008, 10) affirmed that capital structure could

be used to increase debt levels without adopting any radical increase in agency costs.

Thus forcing the managers to strive and invest in profitable ventures in order to benefit

the shareholders. But, in case managers decide to venture/invest in non-profitable

projects, and they fail to pay the interests due to debt holders, debt holders would be free

to force the firm to liquidate. Thus forcing managers to lose their decision rights and/ or

their employment. This brings us to the third hypothesis stated in the null form as:

H3: There is no significant effect of capital structure on firm performance.

2.4.4 Effect of Corporate Governance on Firm Performance Improvement

In exploring effects of corporate governance on firm performance improvement, it

is realistic that capital structure within a firm can be analyzed not only through financial

terms, but also considering the rights of stakeholders and attributes that characterize

firm’s influence and assets (Ayogu, 2001, 10). This is accomplished at different levels of

intensity and governance activities. It is therefore imperative to assert that debt and equity

must be considered as both corporate governance instruments and also financial

instruments (Karugor, 2008, 13).

However, in real world, debt is believed to subordinate governance activities to

stricter management, whereas equity enhance greater flexibility and decision making

powers. According to Modigliani and Miller (1958, 270), contributions between external

and internal equity is effective in conceptualizing the relationship between capital

structure and ownership. Hence it could be further conceptualized that when capital

structures are regarded as instruments of corporate governance, then not only mix

between equity and debt and their respective consequences like taxes must be taken into

consideration. In addition, there should be due process in cash flow allocation, and also

the rights to make decisions (voting rights) for managing the firm should be examined

(Aguilera & Jackson, 2003, 465).

Developments in agency theory affirms that firm value is influenced by decision

made by corporate governance and capital structure, in that it mitigates agency conflicts

between shareholders, managers and debt holders (Oman, 2001, 37) Moreover, according

to Ayogu (2001, 23) the relationship between equity and debt in terms of corporate

governance and firm performance is based on influence of capital structure on

management of activities leading to performance. In addition, Matembe (1999, 15) also

exemplifies that more attention should be focused on role of capital structure since it is an

instrument for mediating and moderating governance. Thus, it brings us to the fourth

hypothesis stated in the null form as:

H4: There is no significant intervening effect of corporate governance on firm

performance improvement.

2.5 The Conceptual Framework

The conceptual framework seeks to link Corporate Governance with firm

performance. The agency theory explicitly analyses the internal Corporate Governance

mechanisms while the free cash flow theory looks at how the leverage and external

environment effects firm performance (Bruton, Chahine and Filatotchev, 2009, 920).

Source: Author 2015

INDEPENDENT

VARIABLE

INTERVENING

VARIABLE

DEPENDENT

VARIABLE

CORPORATE

GOVERNANCE

 Board structure and

composition

 Ownership and

shareholding

 Transparency,

disclosures and

auditing

 Board Remuneration

 Corporate ethics

CAPITAL

STRUCTURE

 Firm Leverage

FIRM

PERFORMANCE

 Return on assets

2.5.1 Research Hypotheses

H1: There is no significant relationship between corporate governance and firm

performance in the construction industry in Tanzania.

H2: There is no significant effect of corporate governance on capital structure as far as

performance improvement is concerned in the construction industry in Tanzania.

H3: There is no significant effect of capital structure on firm performance.

H4: There is no significant intervening effect of corporate governance on firm

performance improvement.

3.0 CHAPTER THREE

3.1 Research Design

The research design that will be used is descriptive cross-sectional design. The

study will seeks to explain the relative influence of Corporate Governance on firm

performance; therefore it will employ a descriptive cross-section research design, which

involves the collection of data to assess the hypothesized relationship among variables.

The design is also chosen considering the type of data and the analysis that will be carried

out.

3.2 Target Population and Sampling

The target population for this study comprises of case- firms in the construction

industry in Tanzania. There will be a total of ten (10) firms. The intention will be to

include the ten firms in the analysis, since it is a sample representation of the main

construction companies in Tanzania.

3.3 Data Collection

The study will use secondary data which will be obtained through a review of

financial statements where an index will be constructed both for Corporate Governance.

For firm performance the financial statements will be reviewed to get Return on Assets

(ROA). Capital structure data for calculating leverage will be obtained from the same

financial statements. The period of study will be 2011, 2012, 2013 and 2014. This period

is significant because it signifies the realistic success or failure level of the case

companies in the construction industry in Tanzania (Ayogu, 2001, 41). A standardized

structured Corporate Governance Index (CGI) will be used and the questions will be

constructed using information obtained from the best code of practice of Corporate

Governance from the regulatory authorities in the construction industry in Tanzania. CGI

will have a value of between 0 and 100, and it will be expected that poorly governed

firms will have lower scores, while better governed companies will have higher scores

(Matembe, 1999, 13).

3.4 Research Methodology

To investigate the relationships between corporate governance practices and

firm performance in Tanzania, this study will employ methodologies adopted in prior

research in this area. Research methodology is a way to systematically solve the

research problem. It may be understood as a science of studying how research is done

scientifically (Ayogu, 2001, 305).

The following is going to be studies:

 The various steps that are generally adopted in studying his research problem

along with the logic behind them.

 To know not only the research methods/techniques but also the methodology.

 To know how to develop certain indices or tests, how to calculate the mean, the

mode, the median or the standard deviation or chi-square, how to apply particular

research techniques, to know which of these methods or techniques, are relevant

and which are not, and what would they mean and indicate and why.

 To understand the assumptions underlying various techniques.

 To know the criteria by which they can decide that certain techniques and

procedures will be applicable to certain problems and others will not.

3.5 Relating the Variables

Multiple regression analyses will be used to assess the strength of the relationship

between dependent, independent and intervening variables. Dependent variables being

ROA, the independent variables being the determinants of Corporate Governance.

Y= β0+β1X1+β2X2+ε…….…………………………………3.1

Y=ROA

B0=intercept, X1 =CG, X2=CS, β1, β2 = coefficients, ε= Error term

3.6 Limitations of the Existing Literature

Even though there is a growing body of literature on corporate governance

practices and company performance, there is a diversity of results due to the applied

different theoretical perspectives, selection of methodologies, measurement of

performance, conflicting views on board involvement in decision making and the

contextual nature of individual firms also found that political opportunity, structure,

stakeholder interest, social infrastructure and mobilization have an influence on

corporations and corporate stakeholders, demanding attention for good corporate

governance practices. In addition most research in area of corporate governance have

been conducted in the developed economies (Charles and Oludele, 2003, 19). However,

there is very limited research on corporate governance practices and the performance of

companies in developing countries such as Tanzania, which operate in difficult

environments (continuous internal wars in great lake regions, militant insurgencies, and

political instabilities resulting in refugees, increased fuel prices and exchange rate

fluctuation), manage to perform steadily in the corporate sector (Ayogu, 2001, 303).

3.7 Knowledge gap and the Significance of the Study

The present study will contribute to the existing body of knowledge concerning

corporate governance practices and firm performance by examining the corporate

governance structures in the construction industry in Tanzania, and how these structures

can reflect the accountability of the board to shareholders and other stakeholders

through firm performance.

3.8 Empirical Methodology

The existing literature on reasons for the effectiveness of corporate governance in

the context of Tanzania explore relationship between construction firm’s board

management, their relationship with employees, structure of organization and

corresponding effects on performance improvement. This is basically meant to derive the

reality on accountability to shareholders and other stakeholders through adopting

corporate framework (DiMaggio & Powell, 1983, 157).

Empirical methodology will be carried out through obtaining data directly from

the selected construction firms. Self-administered questionnaires will be used to ensure

utmost confidentiality since disclosure rate among competing firms is low. However, the

selection process will be based on booked appointment upon which the dates will be set

for visiting each and every construction company that accept the request. Random

sampling will play key role in determining which firm to visit based on the firm that

sampled firms will be visited for the research study (Ayogu, 2001, 62).

However, since there are myriad issues or concerns within the construction

industry in Tanzania, there is high likelihood that the response rate will be high. This is

based on general consideration of the fact that management teams in most of the

construction companies in Tanzania will suppose that collected data is for their benefit

(Aguilera & Jackson, 2003, 449). However, to limit eventualities like misinformation that

may result from interviewing respondents with little understanding of processes and

challenges encountered in firms, raw data obtained from companies will be compared to

information from respective firms’ websites to derive more insight on data reliability

(Mwapachu, 2001, 37).

Moreover, to reduce cases of suspicion on information disclosure and blame game

among management teams in construction firms, Focus Group Discussions (FDGs) will

be used to obtain data from management unlike in the case of employees whereby every

respondent would wish to state own ideas as far as the study is concerned. Every FGD

will contain 6-8 respondents.

3.9 Panel Data

Panel data is important in the study since it is capable of controlling unobserved

individual heterogeneity, it has also rich information about variations and dynamics.

However, it can also assist in eradicating problems of multi-co-linearity, non-stationary

and aggregation bias. It implies that panel data can assist in identifying individual and

corresponding time effects. There are a few limitations that will be observed when using

panel data, for example; large panel data are often unbalanced hence filled with

measurement errors (Mugenda and Mugenda, 1999, 12). Thus affirming why it is realistic

that most existing estimation techniques are based on panel data with short-time-zones.

As explicated above, since unbalanced data has numerous limitations when used for

regression model, the study will adopt balanced data because for any (i) there is (T)

observation.

3.10 Random Effects

In deriving correlation, random variables will be used since they correlate with all

other regressors thus making estimated coefficient to have expected sign and significance

in the study.

3.11 Research Instruments

The researcher will use self-administered questionnaires for collecting data from

employees within firms in the construction industry in Tanzania, while Focus Group

Discussions guides (FGDs) will be used to obtain data from management teams within

distinct firms. The questionnaires will contain both closed and open-ended questions that

generated much data as possible. The questioning techniques will be preferred for the

study due to the fact that, compared to either direct observation or experimentation; it

yields broader range of data (Mugenda and Mugenda, 1999, 20). This will effectively

produce reliable information on how corporate governance improves firms’ performance

in construction industry in Tanzania. Also the questioning technique will be faster and

cheaper comparatively to observation method. Moreover, the FGDs guide will be used

only for collecting data from firms’ management teams.

3.12 Pre-Testing

The questionnaires and FGD pretesting will be done among two sample

construction firms upon acceptance of the request. This process will follow after the

approval of the proposed study. However, it is important to state that firms that take will

take part in pre-test will not be used later during the research study in Tanzania.

3.13 Validity

Validity will be ensured through the use of expertise review of the two

instruments (questionnaire and FGDs), and training of research assistants.

3.14 Reliability

The research instruments will be pretested and respective operational terms will

be defined explicitly.

3.15 Data Analysis and Presentation

Data will be analyzed using random sampling of construction companies to select

on which ones to include in the study. Frequency distribution tables, percentages, graphs

and charts with an aid of Statistical Package for Social Scientists (SPSS) and MS Excel.

The researcher obtained percentages, tables and charts to ease interpretation, conclusion

and recommendations (Mugenda and Mugenda, 1999, 23).

Qualitative data will be transcribed precisely into MS word according to emerged

themes, while quantitative data will be coded into SPSS version 17.0 for data

management. Frequencies and percentages will be used to describe quantitative data

while Chi-Square tests will be used to test for distinct associations between the dependent

and independent variables.

3.16 Logistical and Ethical Consideration

The study will seek approval and authorization from relevant bodies. Permission to carry

out research will be sought from The University of Dar Es Salaam, Ministry of Education

and College of Engineering and Technology. Ethical approval will be sought from

………….. Informed consent will however be sought from participating firms in the

construction industry, employees in the distinct firms. Confidentiality will be maintained

throughout the study.

4.0 References

Aguilera, R. V., & Jackson, G., 2003. The cross-national diversity of corporate

governance: Dimensions and determinants. Academy of Management Review,

28(3), 447-465.

Aguilera, R. V., & Jackson, G., 2010. Comparative and international corporate

governance. The Academy of Management Annals, 4(1), 485-556

Ayogu, M., 2001. Corporate Governance in Africa: The record and policies for good

corporate governance. African Development Review 13 (2): 308-330.

Barr, G. J. G., and Kantor, B., 1995. "Shareholders as Agents and Principals: The Case

for South Africa’s Corporate Governance System", Journal of Applied Corporate

Finance, vol. 8, no. 1.

Berhanu, M., and Samuel, A., 2008. “Journal for Developing Societies Privatization,

Governance and Economic Development in Developing Countries”.

Bruton, G. D., Chahine, S., and Filatotchev, I., 2009. Founders, private equity investors,

and underpricing in Entrepreneurial IPOs. Entrepreneurship, Theory and

Practice, 909-928.

Bruton, G. D., Filatotchev, I., Chahine, S., and Wright, M., 2010. Governance, ownership

structure, and performance of IPO firms: The impact of different types of private

equity investors and institutional environments. Strategic Management Journal,

31, 491-509.

Charles, C. O., and Oludele, A. A., 2003. A Review of Corporate Governance in Africa:

Literature, Issues and Challenges, Paper prepared for the Global Corporate

Governance Forum, 15 June.

DiMaggio, P., & Powell, W. (1983). The iron cage revisited: institutional isomorphism

and collective rationality in organizational fields. American Sociological Review,

48, 147-160.

Karugor, G., 2008. Corporate Governance in the African Context, Economic Reform

Feature Service, CIPE.

Malherbe, S and N. Segal (2001). Corporate Governance in South Africa. Paper

presented at the Trade and Industry Policy Annual Forum, Muldersdrift, South

Africa 10-12 September.

Matembe, M.R.K., 1999. Corporate governance: Uganda’s experience. Paper delivered at

the opening of the EPRC-IDRC Afreximp Regional Workshop on Corporate

Governance. Kampala, 13 September.

Mensah, S., 2001. Corporate Governance: The role of financial markets. Paper presented

at the Pan African Consultative Forum on Corporate Governance, Johannesburg,

South Africa. 16-18 July.

Modigliani, F., and Miller, M. 1958. The cost of capital, corporation finance and the

theory of investment. American Economic Review 48 (3), 261-297. In E.Solomon

(ed) 1959. The Management of Corporate Capital. New York: The Free Press.

Mugenda, O., and Mugenda, A. (1999). Research Methods, Quantitative and Qualitative,

ACTS Press.

Mwapachu, J.V., 2001. Corporate Governance: Tanzania’s experiences and

challenges. Paper presented at the Pan African Consultative Forum on

Corporate Governance, Johannesburg, South Africa. 16-18 July.

OECD., 2010. OECD in co-operation with The World Bank, the International Finance

Corporation and The United States Agency for International Development, OECD

Principles of Corporate Governance, 2004-2010.

Okeahalam, C.C., 2002. Capital Market Development, State Ownership and Corporate

Governance in Africa. Notes Prepared for a Meeting on the Future of Research on

Corporate Governance in Developing and Emerging Markets. Global Corporate

Governance Forum, Washington D.C., 5 April 2002.

Oman, C.P., 2001. Corporate Governance and National Development." An outgrowth of

the OECD Development Centre s Experts Workshop in 2000 and

Informal Policy Dialogue in 2001 sponsored in part by CIPE.

5.0 Appendices

5.1 Appendix 1: Proposed work plan for the research process 2015

ACTIVITY/ MONTH

Dec

Jan

Feb

March

April

May

Proposal development

Proposal approval

Recruitment of research

assistants

Pre-test of data collection tool

Start-up research data collection

Data entry

Data analysis

Report writing and review by

supervisor

Submission of thesis, defense

and correction

5.2 Appendix 2: Budget Proposal for the Research

ITEM

TSHs.

Proposals development (typing and printing)

510, 000

Equipments-lap top, pens, papers

1, 400, 000

Training activities

1, 300, 000

Accommodation and meals for 62 days, @ day 28,000

for two researcher assistants

173, 600

Research and analysis, SPSS software.

1, 200, 000

Transport costs

900, 000

Miscellaneous allowances 10%

450, 800

Literature: NGO’s and other library charges

300, 000

10.

Workshop and forum

100, 000

11.

Publication

1, 500, 000

TOTAL

7, 834, 400

5.3 Appendix 3: Consent

Introduction

My name is Eng. Peter S. Assenga. I am a student pursuing PhD. (Construction

Management) degree in The University of Dar Es Salaam. As a requirement by the

university, for the completion and award of my PhD. I am conducting a study titled:

Corporate Governance and Firm Performance Improvement: Case of Registered

Companies in Tanzania.

Procedures to be followed

I am going to explain about this research and invite you to voluntarily participate

in this research. You will be asked questions contained in the Focus Group Discussion

guide either by me or one of my assistants. Feel free to answer as you wish. You are free

to ask for any clarification before making a decision. You are also free to ask any

question or clarification about the research during or after data collection using the

contact address provided at the end of this document.

Benefits

There are no direct benefits for you as an individual, monetary or otherwise, but

your participation will assist in finding out how Corporate Governance and Firm

Performance Improvement: Case of Registered Companies in Tanzania. This information

will be important in planning and running of programmes to promote and improve

performance in the construction industry in Tanzania.

Risks

The only risk involved in participating in this research is that the questions asked

may be touching on your position and/or work status within the construction industry.

You will also need to spare a little of your time to answer the questions.

Voluntary Participation

Your involvement in this research is completely voluntary. You can voluntarily

choose whether to participate or not. Your choice will not in any way affect you or the

construction firm within which you are working/ those with whom you have consented

on behalf. You may discontinue taking part in this study at any point.

Duration

The data collection will only take period of 30 minutes. During this time, you will

be expected to answer questions from only one questionnaire and may be one interview

schedule or one focused group discussion.

Confidentiality

The identity of those taking part in the research will not be disclosed or shared

with anyone. To ensure confidentiality the data collection forms will not bear your name

or other details that can identify you. All the data and the information obtained during the

study will be used for the sole purpose of meeting the objectives of the study.

Contact Information

If you have any questions, you may contact Dr. Matiko Samson of The University

of Dar Es Salaam.

Agreement to Take Part in the Study

Your signature below means that you have read/ been explained the above

information about the study and that you have had a chance to ask questions to help you

understand what you will do in this study. Your signature also means that you have been

told that you can change your mind later if you want to. You will be given a copy of this

consent form.

_____________________ ________________ ______________

Participants /custodians name Signature/ Thumb print Date

________________________ ___________________ ______________

Person obtaining consent Signature Date

5.4 Appendix 4: Questionnaire

FOR EACH QUESTION TICK THE BOX/SPACE BY TICKING THE

CORRECT ANSWER IN THE BOX OR IN THE SPACE PROVIDED

SECTION A: SOCIO DEMOGRAPHIC CHARACTERISTICS

1. How old are you? ................................ (age in years)

2. Education level:

Primary Secondary College University

3. What is your religion?

Christian Muslim Buddhists Hindu Others

4. Marital Status

Single Married Divorced Singe parent Separated

5. How long have you worked with the construction company?

Less than 1year More than 3 years More than 10 Years

SECTION B: KNOWLEDGE ON CORPORATE GOVERNANCE.

1. What do you understand by the word corporate governance?

...............................................................................................................................................

2. Have you ever heard about companies that successfully adopted corporate governance

within the construction industry in the country?

Yes No.

If yes, Explain……………………………………………………………………………

3. Do you think that it is appropriate for your organization, as far as improving

performance is concerned?

Yes No.

4. What do you think is lacking to effectively integrate corporate governance in the

construction firm? ............................................................................................................

5. What has the organization done to ensure that its objective target are successfully

achieved?

6. Is it worth for a construction firm in the in Tanzania to embrace corporate governance?

7. As an employee, what is your opinion towards corporate governance, does it enhance

organization’s productivity?

8. What factors according to you, are hindering effective integration of corporate

governance in your organization?

9. Can the management adopt a working strategy in ensuring that corporate governance is

adopted for the success of the organization?

Yes No

If Yes, Explain………………………………………………………………………

10. What should the firm do to enhance successful accomplishment of its production

objectives?………………………………………………………………………………

5.5 Appendix 5: FOCUSED GROUP DISCUSSION TOOL FOR RANDOMLY

SELECTED MANAGEMENT PERSONNEL

1. What is your understanding of corporate governance?

2. Do you think that it is appropriate for your organization, as far as improving

performance is concerned?

3. What do you think is lacking to effectively integrate corporate governance in the

construction firm?

4. What strategies have your organization put into place to ensure that targeted

objectives are successful achieved through integration of corporate governance?

5. Is it worth for a firm in the construction industry in Tanzania to embrace corporate

governance?

6. What is your opinion towards corporate governance, does it enhance organization’s

productivity?

7. What factors according to you, are hindering effective integration of corporate

governance?

8. Other than corporate governance, how can firms in the construction industry improve

on their productivity?

9. What role do you play to enhance firm’s productivity in the construction industry?

10. Finally, should all firms in the construction industry adopt corporate governance in

improving performance and productivity?

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