The moderating influence of corporate governance on the relationship between capittal structure and the firm value of companies quoted at the Nairobi Stock Exchange
The Research focused on the moderating influence of corporate governance on the relation between capital structure and firm value, of firms quoted at the Nairobi Stock Exchange (NSE). Local stream of studies of the influence of corporate governance on the relation between Capital Structure and firm value, have adopted duality approach in examining the relations among the three study constructs: the relation between firm value and capital structure, the relation between capital structure and corporate governance and the relation between corporate governance and firm value. They have ignored the mediation role of corporate governance. These studies therefore fail to give empirical analysis of simultaneous relationship of the three variables. The controversial empirical results on this topic can be attributable to lack of attention to the interaction between capital structure and other corporate Governance devices. In this study, cross-sectional descriptive survey design was used. The population comprised 33 quoted companies on the NSE from year 2005 to 2009. Both primary and secondary data were used for this study. The former was collected from CEOs of listed companies while the latter was collected from annual financial statements of target firms using questionnaires. This study employed basic ordinary least square (OLS) regression which is fairly standard in exploring relationships between two sets of variables such as firm value and leverage, firm value and ownership, and leverage and ownership. The study found that all the corporate governance devices have influence on the firm value and capital structure as shown by the Tobin Q. The study thus established regression equation to be: Tobin Q = 4.833+ 1.771 Board independence + 0.986 CEO duality+ 2.358Audit committee independence + 0.116Equity block holders. Capital structure represents one of the many instruments that can preserve corporate governance efficiency and protect its ability to create value. The study recommends that firms should increase board compositions if the situation requires more transparency and accountability. The study further recommends that for firms to have better market performance, it is necessary to adopt better corporate governance practices since such practices affect the firm value and that, leverage of the firms should be maintained at lower levels as it negatively affects the firm value.