Ownership structure and the financial performance of listed companies in Kenya.

Abstract

This study investigates the structure of ownership of companies quoted in the stock exchange and further examines whether ownership structure has significant effects on the performance of publicly listed companies in Kenya. The population of the study included all companies listed in the Main Investment Market Segment (MIMS) of the Nairobi Stock Exchange. The findings of the study suggest that a typical listed company in Kenya has a mixed ownership structure with the legal persons (Institutions) and foreign investors as the two predominant groups of shareholders, each controlling 41% and 34% ownership respectively. The state with 8% and domestic individuals with 17% hold minority shares in most local listed companies. The results presented also show that on the one hand, there are no relationships between state, Institution and Individual ownership and performance. On the other hand, there is a significant effect of foreign ownership on performance of listed companies. The performance of firms dominated by foreign investors seem to be higher than those dominated by any other group of investors. This means that the Kenyan Capital Markets seem to recognize the role of foreign investors. It is recommended therefore that more foreign participation in the stock market be encouraged and the government should divest completely from the stock market. Likewise, competent representatives of institutional investors should be appointed as directors to the boards of listed companies and a mechanism for electing representatives of individual investors be put in place to encourage individual investors participation in the management of firms they own.