Corporate Governance, Capital Structure, Ownership And Value Of Companies Listed At The Nairobi Securities Exchange

Abstract

Academicians, regulators, and practitioners accept sound corporate governance, optimal capital structure, and appropriate ownership structure as a major foundation in optimizing an entity’s value. Different capital market authorities have continually issued guiding principles and regulations for ideal practices of corporate governance to ensure proper and thorough the management of quoted corporations to safeguard all stakeholders’ interests, to enhance entity value and to guarantee corporate sustainability. Regardless of such interventions, corporate failure and underperformance cases ascribed to poor corporate governance have continuously to surged in magnitude and occurrence. The study’s main objective was to establish the relationship between corporate governance, capital structure, ownership structure, and firm value for companies listed at the Nairobi Security Exchange (NSE). The study tested four hypotheses that explored various aspects of this relationship: that corporate governance does not significantly influence firm value; there is no intervening effect on the capital structure on the relationship between corporate governance and corporate value; there is no significant moderating effect of ownership structure on the relationship between corporate governance and corporate value and finally, that there is no significant joint effect of corporate governance, capital structure, ownership structure on corporate value. The study was grounded on the agency theory as anchor theory, the trade-off theory, stewardship theory, and stakeholder theory. The data was retrieved from past audited accounting reports of NSE listed firms. A census survey of sixty-four listed companies at the NSE was undertaken. The investigation covered a five-year period from 2013 to 2017. Corporate Governance was proxied by a composite of size of the board, board independence, board remuneration and gender diversity. Capital structure was proxied by leverage, while ownership structure was proxied by ownership concentration, state ownership, family ownership, and foreign ownership. Corporate performance was measured using the Tobin – Q. The study adopted a positivism research philosophy and a descriptive design. Descriptive statistics were used to summarize the study data and diagnostic tests undertaken to check the model assumptions, thereafter inferential statistics specifically correlation and regression analysis were used for hypothesis testing. The panel data method was considered as the study’s data comprised of cross-sectional as well as time-series data. The Baron and Kenny (1986) method was adopted for assessing the intervening and moderating effect of capital structure and ownership structure separately on the relationship between corporate governance and corporate value. The study documented a significant positive link between corporate governance and corporate value. However, Ownership structure and capital structure had no significant moderating and intervening effects respectively on the relationship between corporate governance and corporate value. The joint effect of corporate governance, capital structure, and ownership structure on corporate value was found to be positive and significant. This study makes an original contribution as it takes an expansive approach of corporate governance development by probing whether improving corporate governance is linked to the enhanced corporate value. The study recommends that shareholders, boards, regulators, and management of listed corporations should put in place robust policies that will ensure the implementation and monitoring of corporate governance principles and ensure congruence in their activities of oversight of corporate objectives of optimizing corporate value, minimize fraud and failure risks of corporations. Future plan is to revisit CG from alternative view of incorporating subjectivity from the perspective of social science.