The Relationship Between Ownership Structure and Financial Performance of Firms Listed at the Nairobi Securities Exchange

Abstract

The study aims at analysing the performance of firms in relation to ownership structure of companies at the Nairobi Securities Exchange (NSE). Period under research was from 2016 - 2020 and 51 listed firms were selected based on consistency of their data availability. The independent variables used were the major ownership structures which are local ownership, state ownership and foreign ownership. The study employed size of firm and age of firm as control variables for the listed entities. The measure of performance used for the listed firms is Return on Asset (ROA). Variables were analysed to provide empirical evidence that was used to identify how structural ownership impacts performance of listed companies. The study was centred on literature review from the agency theory, shareholders theory and market failure theory. The design selected for the research was correlation and cross-sectional data to examine the data collected. Secondary data which in this research is financial information from financial statements and annual reports was collected from Nairobi Securities Exchange and Capital Markets Authority (CMA) as listed entities as stipulated by law should release their annual financial statements. A multiple regression analysis was formulated where Pearson correlation was identified to establish the association between ROA for measuring firm performance and independent variables. This analysis was determined by the use of SPSS software. Results of the research presented that ownership structure tends to have a negative influence on ROA on firms listed at the NSE. Based on this study, state institutions should reduce their percentage of shareholdings in firms to enable privatisation and policies be enforced to regulate the ratio of foreign ownership which will significantly improve firm performance. Therefore, listed firms need to establish the optimal mix of ownership structure that yields the best outcome on their performance.