Effect of corporate governance on share return of companies listed in Nairobi securities exchange

Abstract

The main objective of this study was to investigate the effects of Corporate Governance on the share returns of listed companies at (NSE). Specifically, this study examined board composition being the ratio of non executive directors, presence of audit committee, CEO duality and how they affect the share returns of listed Companies at (NSE). Firm performance was measured using Earning per Share (EPS) and Dividend Yield (DY). Secondary data were collected using documentary information from Company annual accounts for the period 2010 to 2013. Both descriptive and inferential statistics were used. Data was analyzed using a multiple linear regression model descriptive statistics included mean and standard deviation. Data was also presented by use of tables. Regression analysis was also used to show the sensitivity of share return to various independent variables. The population involved in this study was all the 61 companies listed at Nairobi Securities Exchange. A sample ratio of 0.32 was used to obtain sample representation of the entire population. Statistical Package for Social Scientists (SPSS) was used and Spearman Correlation Coefficient and Multiple Regression Analysis to determine the magnitude of the relationship and prediction of share returns respectively were applied. A unit increase in independent director Board Size would lead to increase in share return of companies by a factor of 7.22, unit increase in Audit committee would lead to increase in Share return of companies by a factor of 0.716, a unit increase in EPS would lead to increase in share return of companies by a factor of 1.213 and unit increase in Dividend Yield would lead to increase in return on share by a factor of 1.762. Following the study findings it was possible to conclude that all the five variables the independent variables had an effect on a company‟s share return. The independent directors monitor and control activities of the executive while the audit committee ensures that the executive B.O.D makes decision based on current financial information. The post of the CEO should be fulltime and should have no duality. Regression results indicated that there was a positive and significant relationship between independent directors, Audit committee and CEO‟s dual role as a company‟s chairman on share return. The study recommended that the firm should have non executive directors who constitute at least one third of the board, an Audit committee and separation of CEO and chairman of the board.