The relationship between ownership structure and financial performance of companies listed at the Nairobi securities exchange
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Date
2015-11Author
Mutisya, Samuel B
Type
ThesisLanguage
enMetadata
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The overall objective of this study was to establish the relationship between ownership structure
and financial performance of firms listed at the Nairobi Securities Exchange. The specific
objectives of the study were; to determine the relationship between foreign investors’
shareholding and financial performance, to determine the relationship between local institutional
shareholding and financial performance and to determine the relationship between local
individual shareholding and financial performance. The study used a descriptive research design.
A census of all firms continuously listed on the Nairobi Securities Exchange between 2010 and
2014 was conducted. 58 companies qualified for inclusion in the study. Secondary data obtained
from the Nairobi Securities Exchange handbook and annual returns of shareholding distribution
by listed companies. Karl Pearson coefficient of correlation was used to evaluate the relationship
between variables while multiple regression analysis was used to evaluate the effect of
independent variables on return on assets. The study found that there existed a weak positive
relationship between the percentage of foreign shareholding and return on assets. The result of ttest
established that the relationship was not statistically significant at 5% level of significance.
Local individual shareholding and return on assets were found to have a weak negative
relationship; the relationship was not statistically significant at 5% level of significance. Local
institutional share holding and return on assets were found to have a weak negative relationship.
The relationship was not statistically significant at 5% level of significance. The result of
regression indicated that percentage of shareholding by foreign investors had a negative effect on
return on return on assets. However, using t-test the effect was found to be statistically
insignificant at 5% level of significance. Percentage of shareholding by local individual investors
had a negative effect on return on assets but the effect was not significant at 5% level of
significance. Also the percentage of shareholding by local institutional investors had a negative
effect on return on assets. However the result of t-test indicated that the result was not
statistically significant at 5% level of significance. The study found that the assets turnover and
leverage had a positive effect on return on assets. However the effect of assets turnover was not
statistically significant while the effect of leverage was statistically significant at 5% significance
level. The result of F-test indicated that the regression coefficients were collectively significant
at 5% level of significance. The coefficient of determination R2 for the regression model was
21.7%. The study concluded that ownership distribution had a negative relationship with
financial performance of firms listed on the Nairobi Securities Exchange but the relationship was
not statistically significant. It also concluded that ownership distribution did not have a
significant effect on the financial performance of listed companies. Further the study concluded
that variations in ownership distribution, assets turnover and leverage had a moderate
explanatory on the financial performance of companies listed on the Nairobi Securities
exchange. This study recommended that managers of companies should not focus in placing the
shares of their companies with a particular group of investors because the distribution of
shareholding has not significant effect on their firms’ financial performance. In addition in
selecting investment share investors, investment analysts and advisors should not consider the
ownership distribution of a particular stock because such distribution does not have a significant
effect on firms’ financial performance. Further research may seek to evaluate the effect of
ownership distribution on market value of listed companies. In addition further research may consider the effect of the percentage of shares held by employees on financial performance of companies in addition to considering the effect of government stake in companies listed on the Nairobi Securities exchange.
Publisher
University of Nairobi