Corporate Governance, Idiosyncratic Risk, Economic Factors, and Value of Non-financial Companies Listed at the Nairobi Securities Exchange
Abstract
The value of non-financial listed firms on the Nairobi Securities Exchange was
investigated, as well as its relationship with corporate governance, idiosyncratic risk,
and economic factors. The study specifically sought to ascertain how listed nonfinancial
companies' values are impacted by corporate governance. The intervening,
moderating, and joint effects of idiosyncratic risk and economic factors, respectively,
were investigated to establish the relationship between corporate governance and
value among non-financial listed companies on the Nairobi Securities Exchange. This
study created a framework based on agency theory to investigate whether corporate
governance increases the value of non-financial listed companies when idiosyncratic
risk and economic factors are considered. Between 2010 and 2019, a deliberate
sample of 29 businesses was investigated, accounting for 62% of the 47 non-financial
listed businesses on the Nairobi Securities Exchange. Secondary data with 290 firmyear
observations were drawn from the Capital Markets Authority's database, the
Nairobi Securities Exchange's trading data used for idiosyncratic risk data, the Central
Bank of Kenya's database, and the Kenya National Bureau of Statistics database of
economic factors statistics. To quantify corporate governance, a composite index of
independent directors, gender, ownership concentration, director board meetings, and
audit committee meetings was developed. The non-financial listed firm value was
estimated using Tobin's Q, a market-based measure. Descriptive statistics were
generated to establish the primary characteristics of independent research variables,
and diagnostic tests were run to determine whether independent variables were
statistically and substantively appropriate. To investigate the relationships, the
hypotheses were tested using multiple regression panel data analysis and Pearson's
Product Moment Correlation analysis. A random-effects model in Stata 13 was used
to examine the relationships between the 3,480 data points for 29 non-financial
companies registered at the NSE in the previous 10 years (2010–2019). The null
hypotheses one and two for the direct and intervening effects of corporate governance
and idiosyncratic risk on the value of non-financial firms listed on the NSE,
respectively, were not rejected, according to the study results. The third and fourth
hypotheses were rejected because economic factors moderated and idiosyncratic risk
intervened respectively on the relationships between corporate governance and the
value of listed non-financial firms on the NSE. Many studies have focused on
corporate governance and company value while ignoring the moderating effects of
economic factors as well as the intervening effects of idiosyncratic risk, so this study
filled a gap in the finance literature. Furthermore, because the majority of corporate
governance research has focused on industrialized economies, this study's finding
contributes to the knowledge gap in a growing economy. The finding that corporate
governance has no relationship with the value of non-financial firms based in Kenya
is critical because it can reduce a company's ability to produce value and pave the way
for financial fraud in publicly traded firms. Therefore, the CMA, NSE, and Kenyan
government can use the study's findings to guide regulatory processes and evaluate
current corporate governance requirements for listed firms.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1432]
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