Relationship between managers' gender and corporate capital structure: A case of companies quoted in Nairobi securities exchange

Abstract

Gender differences in attitudes towards risk and in risk related behavior have long been studied in the economics and psychology literatures (Sunden and Surette (1998). More recently, there has been a significant increase of women in corporate executive offices. With this increase, researchers have started to investigate the impact of gender on various corporate decisions, such as capital structure decisions, merger and acquisition decisions and going public decisions (Huang and Song (2008). As more women enter the workforce worldwide (Erez. 1993), more research is focused on the investigation of influence of gender-specific characteristics on the work process (Niessen and Ruenzi 2007, Sabarwal and Terrell 2008). Special attention has been paid to women in leadership positions. The study sought to investigate the effect of managers’ gender on corporate capital structure choice with reference to companies quoted in Nairobi Securities Exchange. The study was designed to provide information on potential cause-and-effect relationships. This study therefore employed a causal research design. The study found that there exists a negative relationship between gender of firm’s CEO, female share and the debt to equity ratio (corporate capital structure) of the firm listed at the NSE. The study also established that there is a positive debt to equity ratio (corporate capital structure) of firm listed in the NSE and performance, liquidity, tangibility of firm’s assets, effective tax rate, firm size and industry class. The positive relationship with debt to equity was established among the following control variables; size of the firm, liquidity of the firm, tangibility of the firm and industry class. Any positive change on these variables is therefore going to lead to an increase in the debt to eqmay be because growth will lead to increased demand for external funds, size will encourage the firm to borrow, liquidity has the impact of leading to favorable credit assessments and tangibility has the role of providing assets for collateral. The study recommends that companies in risky industries like the financial sector should use more of CEOs who are risk takers as the risk averse CEO will affect the capital structure of their firms. the study recommends that companies at NSE must follow the financing hierarchy as postulated by the pecking order concept i.e. internal funds should be used before debt financing and then equity as equity and debt financing are more expensive and they affects the capital structure of the company compared to internal fundsuity positions. The reasons for thismay be because growth will lead to increased demand for external funds, size will encourage the firm to borrow, liquidity has the impact of leading to favorable credit assessments and tangibility has the role of providing assets for collateral. The study recommends that companies in risky industries like the financial sector should use more of CEOs who are risk takers as the risk averse CEO will affect the capital structure of their firms. the study recommends that companies at NSE must follow the financing hierarchy as postulated by the pecking order concept i.e. internal funds should be used before debt financing and then equity as equity and debt financing are more expensive and they affects the capital structure of the company compared to internal funds.