Insider shareholdings and firm performance: the case of companies quoted at Nairobi Stock Exchange

Abstract

This paper has sought to establish whether there IS a relationship between insider shareholdings and finn performance. It measures the effects of insider ownership using a measure of firm performance, namely return on equity. The paper applies the insider ownership model on publicly listed firms at the Nairobi Stock Exchange.

The insider ownership model provides results that support a cubic relationship between insider ownership and firm performance. This confirms that managerial entrenchment has an unambiguous negative effect on firm performance as measured by return on equity, and that the wealth effect of insider ownership is unambiguously positive. This evidence is consistent with both the convergence of interest and entrenchment effect hypotheses. Overall results indicate that insider ownership has a positive impact on firm performance