The Relationship Between Ownership Structure and Financial Performance of Listed Firms in the Manufacturing and Allied Sector of the Nairobi Securities Exchange

Abstract

Corporate Governance enthusiasts hold key interest how ownership structure affects firm performance. The financial performance of a firm is not just dependent on its investment projects but also on its ownership structure. This study aimed at establishing how ownership structure contributes to the financial performance of public manufacturing firms in Kenya. Ownership structure was the independent variable measured by the percentage shareholding of the top ten largest shareholders and foreign shareholders. Tobin's Q measured financial performance. The study was a panel study focusing on the 10 firms listed in the Manufacturing and Allied segment. The study covered the period between 2011 and 2015. Data used for the study were obtained from the NSE and from annual reports of the firms accessed from their websites. Regression analysis was done at 95 percent confidence level. The findings show a steadily increasing ownership by the top ten owners in the firms, but a constant 1.50% ownership by foreign owners. The shareholding by the top ten shareholders positively, but insignificant contributes to financial performance. Foreign ownership negatively, but not statistically significantly contributes to financial performance. Ownership structure does not significantly contribute to financial performance. The study recommends that both the largest shareholders and foreign owners use their strength to influence decision making in the firms to control agency for improved financial performance.