Ownership Structure, Corporate Governance Practices and Financial Performance of Companies Listed at the Nairobi Securities Exchange, Kenya.
Nzuki, Nathan Mwaka
MetadataShow full item record
Performance of firms is predominantly contingent on the deliberate decisions cautiously made and executed by the owners therefore there is a direct link between ownership structure, corporate governance practices and financial performance. Owners are part of a segment that makes decisions by the virtue of their relationship with the firm. The conventional approach to corporate governance has characteristically disregarded the distinctive influence that the firm owners put forth on the board, and by extension, the top executive in making firms decisions. Therefore, the question of what maybe the most efficient ownership structure is relevant. Through the period 2014 to 2018, there was an increase in the listed firms that issued profit warnings with others like Kenya Airways and Uchumi Supermarket running into huge financial losses. During this period, there was a decline in the average Return On Assets of listed firms from 4.7% in 2014 to 2.28% in 2016 and 1.04% in 2018. This study aims at determining the relationship between structure of ownership and corporate governance practices on firms performance financially and are anchored on five explicit objectives: to ascertain the impact of institutional local ownership on firms performance, to evaluate whether managerial ownership impact on firms performance, to establish the effect of board composition on firms performance, to ascertain the impact of board size on performance, then ultimately explore whether board independence affects firms performance financially. This exploration is premised on, stewardship, stakeholder, Agency and Resource Dependence theories which expound an association of structure of ownership and performance financially of all Kenyan listed firmsthrough2014 to 2018. The examination adopts a causal research design. A census of the 60 listed firms is drawn in this study. Secondary data relating to ownership structure, corporate governance practices and return on assets is collected using secondary data collection sheet. Panel regression model is utilised to ascertain the relationship between the predictor and dependent variables. From the regression analysis, an overall R2 of 0.5341 is obtained which implies that the predictor variables explain 53.41 % of the change in the Return on assets of the listed firms at Nairobi Securities Exchange. The results also show that the effect of Institutional local ownership, board size and board independence on Return on assets is significant as shown by the p values of 0.002, 0.029 and 0.011 respectively. Managerial ownership and board composition are found to have an insignificant effect on Return on assets as shown by the p values of 0.637 and 0.058 respectively. The study is recommending that companies should through their memorandum and article of association endeavour to come up with leaner and smaller board size through a thorough examination of the performance of its industry of operation. Lastly, the companies need to ensure that more independent directors are brought on board as they have no conflict of interest.