The Relationship Between Corporate Governance and Corporate Cash Holdings of Firms Listed at the Nairobi Stock Exchange

Abstract

This paper investigates the relationship between corporate governance mechanisms and corporate cash holdings of firms quoted at the Nairobi Stock Exchange. Data was collected from annual reports and investors returns file obtained from Nairobi Stock Exchange. The results of the research established that board size and outsider director’s representation in the board is positively significantly related to corporate cash holdings. The study also established that outsider director’s representation in the board’s audit committee is negatively significantly related to corporate cash holding. We also find that other corporate governance mechanisms (CEO-Chairman Duality and insider ownership) and control variables (size of the firm and leverage) are not significant and hence concluded that there is no significant relationship between them and corporate cash holdings. The above findings implies that managers of firms in Kenya with poor governance structure have more discretion over corporate cash policies, which leads to these firms holding larger cash reserves than firms with more effective governance structures.