The Effect of Ownership Structure on Financial Performance of Firms Listed at the Nairobi Securities Exchange

Abstract

The separation of management from ownership is considered as the most important investors' concerns these days. . Shareholding structure of the Company is the foundation of corporate governance, which will affect efficiency, and will reflect on the company's financial performance. This study adds to the growing number of literatures and figures out the situation in Kenya by examining the association between ownership structure and return on assets as a proxy for firm financial performance This study examined the relationship between ownership structure and financial performance of firms listed in the Nairobi Stock Exchange for the period 2012-2016. The main objective of the study is to determine the effect of ownership structure on performance of companies listed at the Nairobi Securities Exchange. Data on managerial ownership, institutional ownership, ownership concentration and firm size as well as the companies’ financial performance were obtained from 58 companies using a secondary data. Using the Ordinary Least Squares (OLS) regression, the results show that there is a negative association between ownership structure and financial performance. Regression model was employed in the analysis of data to estimate the quantitative effect of ownership structure on the financial performance of the listed companies in Kenya. The study established a Pearson correlation value R of 0.811 which depicts that there is a linear dependence of ownership structure on return on assets (ROA). R square revealed that ownership structure attributes influenced about 65.8% of variation in return on asset. The value of adjusted R square was established to be of 63.2% which clearly brought out that the relationship between ownership structure and ROA of the listed companies. Generally, the study came to a conclusion that there significant relationship between ownership structure and financial performance of the listed companies in Kenya. Overall, the results indicate a statistically significant effect of ownership structure on financial performance the results partially concur with agency and steward dependency theories of corporate governance as well as similar empirical studies. It also implies that ownership structure on board and firm financial performance are interrelated.