The Relationship Between Chief Executive Officer Qualities and Value of Firms Listed at the Nairobi Securities Exchange

Abstract

Managers are nearly usually blamed and praised for a company's successes and failures. Executive managers encourage growth and management of complexities, while maintaining control of expenditures in a continuously fluctuating environment. Executive managers make critical strategic choices that determine whether or not a company will survive. Furthermore, their job is becoming increasingly focused on growth investment problems in order to start a profound organizational change and create value. As a result, executive directors' qualities, such as those of Chief Executive Officers (CEOs), are important. The overall objective of the study was to establish effect of CEO quality on the value of firms listed on the Nairobi Securities Exchange. It also aimed at reviewing the increasing body of theoretical and empirical studies that have endeavored to examine the range of magnitude and effects of CEO quality on firm value. The upper echelons, stakeholder, and agency theories guided the current study. The current study utilized the descriptive research design The target population was all the 64 listed firms at the Nairobi Securities Exchange. The study employed a census and it examined the whole population. The unit period of analysis was annual, and data was collected for the period from 2016 to 2020; the period comprised of five years. The study applied correlation analysis and multiple linear regression model with the technique of estimation being Ordinary Least Squares (OLS) so as to establish the relationship of CEO quality and firm value. The study findings were that that CEO education, CEO work experience, CEO tenure, and leverage do not have a significant correlation with firm value. Further study findings established that the model entailing; CEO quality aspects comprising of CEO education, CEO work experience, and CEO tenure, and also leverage explains firm value to a very least extent with a coefficient of determination value of 0.32%. Additional study findings were that that the model consisting of CEO quality aspects comprising of CEO education, CEO work experience, and CEO tenure, and also leverage does not significantly predict firm value (Prob>chi2=0.1800). Final study findings were that CEO education (p=0.753>0.05), CEO work experience (p=0.396>0.05), CEO tenure (p=0.080>0.05), and leverage (p=0.823>0.05) do not each individually have a significant relationship with firm value. Policy recommendations are made to the government officials and policy formulators in the financial sector, mainly the regulator, the Capital Markets Authority (CMA), and the Treasury, not to mainly focus on CEO qualities when endeavouring to boost firm value in order to spur the development of capital markets. Recommendations are also generated to the financial analysts not to estimate market capitalization, and by extension, securities value, by using CEO qualities, and in extension, leverage. To be able to predict bear and bull markets, they should mostly perform due diligence and background check on their investment targets. Finally, recommendations are made to consultants and listed firms practitioners should not mainly focus on CEO qualities to time strategies like securities exchange listings, rights issues, and dividend pay-outs