The Effect of Breadth of Ownership on Stock Performance for Firms Listed at the Nairobi Securities Exchange, Kenya

Abstract

The core reason for this study is to determine the effect of breadth of ownership on stock performance for firms listed in the NSE. A descriptive research design was embraced. The research targeted 63 firms that are quoted at the NSE. However, only 47 firms that have traded consistently within the period of study were selected. This study used secondary data in the analysis. Yearly data for five years (December 2015 to December 2019) was collected and analyzed. Data during 2020 was not considered since the Covid-19 pandemic had an effect on the share prices. According to the correlation analysis outcomes, ownership of breadth is significant and positively related to performance of a stock. The analysis for breadth of ownership indicates that the coefficient of correlation r is 0.084 and has p value 0.003˂0.05. The size of a firm is significantly and negatively related to performance of a stock, where the coefficient r was found to be negative 0.394 and has p value of 0.006˂0.05. Dividend policy was insignificant and positively related to performance of a stock, where the coefficient r was found to be 0.130 and has p value of 0.383>0.05. The adjusted R-Square was found to be 0.197 which showed that 19.7% of variance in stock performance for firms that are quoted at the NSE are described by breadth of ownership, size and dividend. The F test identified breadth of ownership, firm size and dividend policy collectively significantly influence performance of a stock for the companies that are listed at the NSE at the 5% significance level. The results for regression analysis indicated that breadth of ownership had a significant and positive relationship with performance of a stock at 5% significance level. Firm size had a significant and negative relationship with performance of a stock at 5% significance level. Dividend policy had an insignificant and positive relationship with performance of a stock at 5% significance level. The research concludes that companies with more shareholders are bound to make decisions which will positively influence the operations of the firms. The findings also conclude that firm size has an influence and smaller firms are able to change and adapt to different circumstances in response to the stock market dynamics and able to grow much faster than larger companies. This leads to the conclusion that dividend policy does not affect stock performance for the listed firms. There is no causal link between dividend policy and stock performance. The study recommends that listed firms increase their number of shareholders through allotment of further shares and increase of authorized share capital. On firm size, the study recommends that small firms should capitalize on their growth potential to increase their value in the stock market. Dividend policy should be ignored by firms which endeavor to perform at the stock market. The listed firms should not put much emphasis on dividend policy since it has no causal relationship with stock performance. The study suggests that further research should be done in stock markets across the East African region to enable comparison of results and generalization of the finding.