Corporate Governance, Idiosyncratic Risk, Economic Factors, and Value of Non-financial Companies Listed at the Nairobi Securities Exchange

Abstract

The value of non-financial listed firms on the Nairobi Securities Exchange was investigated, as well as its relationship with corporate governance, idiosyncratic risk, and economic factors. The study specifically sought to ascertain how listed nonfinancial companies' values are impacted by corporate governance. The intervening, moderating, and joint effects of idiosyncratic risk and economic factors, respectively, were investigated to establish the relationship between corporate governance and value among non-financial listed companies on the Nairobi Securities Exchange. This study created a framework based on agency theory to investigate whether corporate governance increases the value of non-financial listed companies when idiosyncratic risk and economic factors are considered. Between 2010 and 2019, a deliberate sample of 29 businesses was investigated, accounting for 62% of the 47 non-financial listed businesses on the Nairobi Securities Exchange. Secondary data with 290 firmyear observations were drawn from the Capital Markets Authority's database, the Nairobi Securities Exchange's trading data used for idiosyncratic risk data, the Central Bank of Kenya's database, and the Kenya National Bureau of Statistics database of economic factors statistics. To quantify corporate governance, a composite index of independent directors, gender, ownership concentration, director board meetings, and audit committee meetings was developed. The non-financial listed firm value was estimated using Tobin's Q, a market-based measure. Descriptive statistics were generated to establish the primary characteristics of independent research variables, and diagnostic tests were run to determine whether independent variables were statistically and substantively appropriate. To investigate the relationships, the hypotheses were tested using multiple regression panel data analysis and Pearson's Product Moment Correlation analysis. A random-effects model in Stata 13 was used to examine the relationships between the 3,480 data points for 29 non-financial companies registered at the NSE in the previous 10 years (2010–2019). The null hypotheses one and two for the direct and intervening effects of corporate governance and idiosyncratic risk on the value of non-financial firms listed on the NSE, respectively, were not rejected, according to the study results. The third and fourth hypotheses were rejected because economic factors moderated and idiosyncratic risk intervened respectively on the relationships between corporate governance and the value of listed non-financial firms on the NSE. Many studies have focused on corporate governance and company value while ignoring the moderating effects of economic factors as well as the intervening effects of idiosyncratic risk, so this study filled a gap in the finance literature. Furthermore, because the majority of corporate governance research has focused on industrialized economies, this study's finding contributes to the knowledge gap in a growing economy. The finding that corporate governance has no relationship with the value of non-financial firms based in Kenya is critical because it can reduce a company's ability to produce value and pave the way for financial fraud in publicly traded firms. Therefore, the CMA, NSE, and Kenyan government can use the study's findings to guide regulatory processes and evaluate current corporate governance requirements for listed firms.