Effect Of Corporate Governance On Share Return Of Non-Financial Firms Listed At Nairobi Securities Exchange

Abstract

This research sought to exam ine the effect of corporate governance on stock returns of non-financial firms listed at the NSE. Annual changes in share prices of the sector firms were used as the measure of stock returns while board size, board diversity and board composition were used as indicators for corporate governance. In addition, profitability and firm size were used as the control variables. The study covered 40 non-financial firms listed at the Nairobi Securities Exchange and a five-year period data was analyzed; from 2014 to 2018. The study approved a descriptive design using panel data. Secondary information was collected from audited financial statement of the firms under study. Information was then evaluated using multiple linear regression model in SPSS. The analysis produced an adjusted R squared value of 0.848 which mean that 84 percent of changes in stock returns of the non-financial firms listed at the NSE can be explained by the five predictors; meaning 15..2 percent of the changes in the stock returns is explained by factors beyond the coverage of this study. This study also discovered a strong correlation between the predictor variables and stock returns of the commercial and services firms listed at the NSE. The results concluded that board size had a statistically insignificant negative effect on stock returns, board diversity and firm size had a statistically insignificant negative effect on stock returns whereas board composition and financial performance had a statistically significant effect on stock returns for the firms under study but financial performance affected positively. The study therefore recommends that the management of listed firms should ensure that their boards have small number of at average of 9 directors to ensure that they maximize their share returns