Effect of Ownership Concentration and Corporate Governance on Financial Performance, of Firms Listed at the Nairobi Stock Exchange

Abstract

Numerous studies have been carried out to examine the relationship between ownership concentration, corporate governance and firm performance. While there is extensive literature that discusses the role of ownership structure in corporate governance around the world, there is scarce evidence from prior literature that empirically examine the relationship between ownership structure, corporate governance and financial performance. The paper investigated the effects of ownership concentration and corporate governance on financial performance of listed companies in Nairobi Securities Exchange (NSE) with an aim to determine the nature of relation between ownership concentration and financial performance and also determine the relationship between corporate governance and financial performance. The study was designed as a descriptive study. The population was 58 listed companies at the Nairobi Securities Exchange from which a sample size of 45 firms was selected. Secondary data from 2006 to 2010 was collected for these firms from their annual reports as well as from NSE database on ownership and performance. Data was analysed using descriptive analysis, multiple regression analysis and correlation analysis. The study found that firm performance was unaffected by either ownership concentration or corporate governance. The regression model therefore failed to establish any significance influence of corporate governance or ownership concentration on firm performance. The study concludes that performance is unaffected by the corporate governance as measured by institutional shareholders. The study further concludes that performance of firms listed on the NSE is not affected by the ownership concentration.

The study recommends that for listed firms at the Nairobi Securities Exchange, it does not matter the presence or absence of blockholder ownership and therefore this should not worry the firms as it has no influence on their overall performance. It is important also for the Capital Markets Authority to relook into the corporate governance issues since in this study, no evidence was found for the impact of corporate governance on performance. This is more specific to the institutional shareholding.