The effect of corporate governance on the value of the firm: an empirical study of firms listed in the Nairobi Stock Exchange
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Corporate governance is the process and structure used to direct and manage business affairs of the company towards enhancing prosperity and corporate accounting with the ultimate objective of realizing shareholders' long-term value while taking into account the interest of other stakeholders. It is thus incum bent of finn to strive to max im ise the return to shareholders, as measured by the sum of capital gains and dividends, for a given level of risk. Embedding corporate governance in organisations enables them to be operated and run in a harmonious way so that all the stakeholder interests are met in a balanced manner. The absence of a mechanism to balance the varied stakeholder interests would precipitate havoc and ultimately, disintegration of the finn, reducing its value. The study sought to determine the effect of implementation of corporate governance on the value of firms listed on the NSE. The study targeted all the 46 companies listed at the Nairobi Stock Exchange as at 31 December 2008 and made use of secondary data sources from the audited financial statements of individual companies sampled, which financial statements are available at the Capital Markets Authority library to collect the data. The study then employed the lise of multiple regression analysis to examine the effect of the various aspects of corporate governance on the value of the firm. The study found out that board size, proportion of shares held by insiders, number of meetings per year, chairmans' and CEOs' qualification positively influence the firms' value while the percentage of inside directors negatively correlates with the value of firms. The study recommends that companies should essentially adopt corporate governance to enhance their value.
University of Nairobi, Kenya