The effect of ownership structure on financial performance of companies listed in the Nairobi securities exchange
Abstract
This study investigates the effect of ownership structures on financial performance of companies
listed in the NSE. In particular, the study seeks to enhance understanding on the issue by finding
out how the financial performance is affected by the ownership structures. The study is
conducted based on a sample of sixty two companies listed on the Nairobi Securities Exchange
during the period 2008-2013. Ownership structure relates to the decision making segment of the
firm. The term ‘ownership structure’ has two widely applied dimensions: ownership
concentration and owner identity. Ownership concentration measures the degree of concentration
of voting rights. The voting rights of the largest shareholder and the sum of voting rights of the
second and third largest shareholder measures it. Ownership identity was further broken down
into foreign ownership, institutional ownership, Government ownership and diverse ownership.
The empirical analysis on the effects of ownership structure on financial performance is
conducted on the whole population of the companies listed in the Nairobi Securities Exchange.
Empirical analysis is conducted using the linear regression analysis method. The Study found out
the financial performance of Kenyan firms can best be explained the ownership concentration
and ownership identity. The study found a positive relationship between ownership concentration
and financial performance. A positive relationship between financial performance and ownership
identity was also observed. These results have important implications on policy and therefore
provides a number of policy recommendations, such as showing a need to reasonably diversify
shareholding as a way of attracting more skills and competencies among the shareholders that
can be tapped to improve firm performance.