The effect of corporate governance practices on stock market liquidity of firms listed at the Nairobi securities exchange
This study sought to investigate the effect of selected corporate governance variables on stock liquidity for firm’s listed at the Nairobi Securities Exchange. In particular the study examined the effect of size of the Board on stock liquidity, the effect of frequency of board meetings on stock liquidity, the effect of unitary structure of Board on stock liquidity, the effect of Board independence on stock liquidity and the effect of seniority of the boards on stock liquidity for firms listed at the Nairobi Securities Exchange. The study addressed the gap of whether the corporate governance variables had an effect on the stock liquidity and whether one can use them to predict the stock liquidity at the bourse. The study used a descriptive research design. The population of this study comprised of all the listed firms at the Nairobi Securities Exchange from January 2009 to December 2013. The sample constituted all the firms that comprise the NSE 20 Share Index. Analysis was conducted through the use of regression analysis and ANOVA. The results indicated that corporate governance variables, as represented by the predictor variables only influenced four percent of variations in stock liquidity as indicated by the adjusted R square statistic. The model thus only explained a small proportion of the variations in stock liquidity. The study also found board independence to have a positive and sizeable effect on stock liquidity. Thus a shift in board independence influences a same direction shift of the stock liquidity; board size had a positive but lesser effect on stock liquidity; further frequency of board meetings had a positive but lesser effect on stock liquidity. Unitary structure of the board was found to have a negative relationship with stock liquidity and Seniority of the board slightly larger negative relationship with stock liquidity. The ANOVA test of significance on the five predictor variables found none of the variables to be of significance in predicating stock market liquidity in the model. On the basis of the findings, the study recommends none of the selected corporate governance variables of firms in the Nairobi Securities Exchange can be reliably used as a basis for projecting stock liquidity variations of listed firms. It is therefore suggested that other corporate governance variables be studied to determine those that can be reliably used to predict stock liquidity variations at the Nairobi Securities Exchange.