Investment Efficiency, Managerial Ability, Corporate Governance and Disclosure Quality Among Firms Listed at the Nairobi Securities Exchange

Abstract

The research objective was to establish the relationship between investment efficiency, managerial ability, corporate governance, and disclosure quality among firms listed at the Nairobi Securities Exchange with an aim of resolving the various research gaps as identified in the literature review. These research gaps included: varied findings on the relationship between investment efficiency and disclosure quality, lack of studies on how moderating variables influence the link between investment efficiency and corporate governance and no documentation on how investment efficiency, managerial ability and corporate governance jointly influence disclosure quality. To this end, the study adopted four research hypotheses in testing the proposed research objectives. Fifty-six firms listed at the Nairobi stock exchange over the period 2008 to 2021 were selected. This study was anchored on the tenets of the stewardship theory. Descriptive research design was utilized in the research. The research also adopted positivism research philosophy by testing the identified research hypotheses. Secondary data in the form of annual audited financial statements was analyzed using Stata and SPSS version 27 software. Multivariate fixed effect panel data regression models and correlation were used in testing whether there was any relationship between the study variables. Diagnostic tests which included linearity, normality, homoscedasticity, multicollinearity, unit root and autocorrelation were conducted. The findings revealed a significant positive relationship between investment efficiency and disclosure quality among firms listed at the Nairobi stock exchange. The study also established a significant moderating impact of managerial ability, board size and ownership structure on the association between investment efficiency and disclosure quality. Additionally, the research discovered that board independence did not moderate the relationship between investment efficiency and disclosure quality. The research also established that the joint effect of investment efficiency, managerial ability and corporate governance on disclosure quality was statistically significant. These research findings add to existing knowledge on how investment efficiency influence disclosure quality by establishing that the relationship between investment efficiency and disclosure quality is not direct in nature and that managerial ability, board size and ownership structure influence the relationship. The research findings also add to existing theories on stewardship and signaling by advocating for the establishment of proper policy frameworks geared towards managerial capacity building on portfolio investment efficiency and quality disclosures. Findings that board size and ownership structure had a direct impact on both investment efficiency and disclosure quality reiterate the need for regulators to strengthen existing corporate governance rules. Local authorities should encourage quality disclosures by providing tax exemptions or subsidies to firms with high disclosure qualities and good corporate governance structures. These research findings will further provide a platform and basis for future related empirical and theoretical discourse.