Corporate Governance, Capital Structure, Ownership Structure and Value of Non-financial Firms Listed at the Nairobi Securities Exchange

Abstract

Firm value (FV) of quoted non-financial companies was examined, with the goal of determining the impact of corporate governance (CG) on their valuations. Numerous studies have investigated the correlation between CG and FV, but have not examined the moderating and mediation effects of ownership structure (OS). While a plethora of CG studies focus on industrialized economies, the conclusions of this study offer critical insights into an emerging nation, bridging a knowledge gap in this setting. The study utilized agency theory to appraise the influence of governance on the FV of non-financial entities listed on the Nairobi Securities Exchange (NSE), assessing their interactions and influence. A census survey was conducted on 40 Nairobi Securities Exchange non-financial listed companies from 2012 to 2021, obtaining 300 data points from 30 firms that were consistently active. Additionally, a composite index was created to assess CG, considering various governance factors related to the study's relationships. Tobin's Q, a market-based estimate, was used to estimate the value of non-financial quoted companies. The study used a descriptive longitudinal research methodology to analyze secondary data using critical statistical metrics and correlation tests to determine the strength and nature of the connections between variables. Additionally, the study, utilizing diagnostic tests and inferential analysis, found that CG significantly influenced FV, indicating a positive and statistically significant impact of governance. The four-step mediation analysis reveals that CS doesn't mediate the CG-FV relationship, but OS significantly impacts the relationship. Lastly, the findings could be utilized by the Capital Market Authority (CMA), NSE, and government to influence regulatory procedures and review existing governance guidelines for quoted firms. Additionally, studying CG characteristics of government-owned listed firms could offer valuable insights into the impact of political appointments on boards. The study aimed to enhance understanding of how governance practices, CS, and OS impact FV, enhancing existing research in the field.