Corporate governance, capital structure, regulatory compliance and performance of firms listed at the East African community securities exchange
Abstract
The purpose of the study was to establish the effec
t of corporate governance, capital
structure, and regulatory compliance on performance
of firms listed at the East African
community securities exchange. Specifically the stu
dy sought to establish the effect of
capital structure and regulatory compliance on the
relationship between corporate
governance and firm performance of listed companies
in Kenya, Tanzania, Uganda,
Rwanda and Burundi. The moderating, intervening and
the joint effects of capital
structure and regulatory compliance on the relation
ship between corporate governance
and firm performance were tested. Based on the agen
cy theory this study builds a
comprehensive framework to answer the research ques
tion on whether good corporate
governance affects firms performance by integrating
capital structure and regulatory
compliance into the governance model. A census sur
vey was carried out on all the 98
listed companies between 2009 and 2013 in Nairobi S
ecurities Exchange, Uganda
Securities Exchange, Dar es Salaam Stock Exchange a
nd Rwanda Stock Exchange. Out
of the 98 firms that were targeted, 56 were analyze
d constituting 57%. The study
developed a Corporate Governance Index as a proxy f
or corporate governance and the
index constitutes board structure and composition,
ownership and shareholding,
transparency, disclosures and auditing, board remun
eration and corporate ethics. The
accounting and market based measures were used as f
irm performance measurements and
for comparison purposes the cost of capital was als
o considered. Hypotheses were tested
using regression analysis and Pearson’s Product Mom
ent Correlation analysis.
Descriptive statistics were computed for the listed
companies and the main characteristics
of the study variables. The findings revealed that
the influence of corporate governance
on firm performance was statistically significant.
There was a significant positive
relationship between corporate governance and firm
performance. The study also
confirmed that there is a positive significant inte
rvening effect of capital structure
(leverage) and a positive significant moderating ef
fect of regulatory compliance on the
relationship between corporate governance and firm
performance. The joint effect of
capital structure and regulatory compliance on firm
performance was greater than the
individual effects of capital structure and regulat
ory compliance on firm performance.
From a theoretical perspective, this study not only
explains how corporate governance
affects firm performance, but also uncovers the imp
ortance of capital structure and
regulatory compliance in a corporate governance sys
tem. The study not only contributes
to understanding the link between corporate governa
nce and firm performance but at the
same time confirms the findings of previous studies
that have found a significant link
between corporate governance and firm performance.
The study brings out an increased
understanding that the combinative effect of the st
udy variables is greater than the
individual effects therefore organizations can enha
nce their performance by
implementing good corporate governance practices
Publisher
University of Nairobi