MST-Department of Accounting and Finance

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Browsing MST-Department of Accounting and Finance by Author "Abdullahi, Guhad Ibrahim"

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    Internal Corporate Governance Mechanism and Firms Value of Selected Companies Listed at the Nairobi Securities Exchange, Kenya
    (Kenyatta University, 2024-11) Abdullahi, Guhad Ibrahim
    Corporate governance mechanisms can influence firm value. Larger boards are associated with inefficiencies in communication and moral hazard issues, ownership structure can result in excessive insider trading and board independence may not necessarily enhance firm value especially where the board members lack the necessary qualifications and experience. In Kenya, listed manufacturing and construction companies registered a significant decline in firm values which fell by an average of 29.9% from 2018 to 2023. The decline in firm value was registered in a period when the firms experienced significant changes in their corporate governance practices as CEO existed, new independent directors were appointed and the individual shareholders increased their ownership in the firm. Thus, the study's main objective was to ascertain how internal corporate governance practices affected the selected firm value in the NSE. The specific objectives included examining the effect of board size, ownership structure, and board independence on firm value, determining the mediating effect of profitability and the moderating effect of foreign capital flows on the relationship between internal corporate governance mechanisms and firm value. The study variables were anchored on Agency Theory, Transaction Cost Theory, Knight's Theory of Profit, and Efficient Market Theory. The research opted for the longitudinal design and collected panel data for 14 firms at the NSE covering the years 2014 to 2023. Data collection was from secondary sources, primarily annual financial reports. Data analysis encompassed both descriptive and inferential techniques, including means, standard deviations, and panel regression analysis using the STATA software. Diagnostic tests were conducted to validate the model and address potential issues such as multicollinearity, normality, stationarity, heteroscedasticity, and model specification. The study tested various hypotheses and found that board size positively affected firm value (p = 0.001 < 0.05, t = 3.41 > 6, β = 0.075), with the optimal size around nine members. Board independence was positively correlated with firm value (p = 0.006 < 0.05, t = 2.76 > 6, β = 0.008), emphasizing the importance of having independent directors. The study also found that ownership structure, while balanced, did not significantly influence firm value (p = 0.0287 > 0.05, t = 1.12 < 1.96, β = 0.065), indicating other governance mechanisms may be more critical. The mediating variable profitability significantly mediated corporate governance and firm value association with a β =0.344, (p = 0.025 < 0.05). The moderating variable foreign capital inflow was found to be a positive and significant determinant of foreign capital inflow. It explained 10.002% variance of firm value with a Beta of 1.85831. Recommendations for corporate managers include optimizing board size, increasing board independence, and enhancing profitability strategies. Policymakers are advised to promote balanced ownership structures and foreign investment. Stakeholders should advocate for governance practices that align with these findings to ensure sustainable firm value.