The effect of corporate governance on the share price of companies listed at Nairobi Security Exchange.

Abstract

Corporate governance is one of the most important issues for all local and international companies at the present time. The global financial crisis, which adversely affected world economy, has put the concept of corporate governance at center stage. Governance rules and regulations around the world aim at minimizing the abuse of shareholder interests by top management. Companies listed in NSE face various challenges such as; keeping in pace globalizations, government policies and regulation, integrity, client demands, resource management, market and customer loyalty, risk management, business complexity, competition and inadequate capital. The purpose of this study was to find out effects of corporate governance on the share price of companies listed in NSE. The population of interest in this study was companies listed in NSE, whose number stood at 64 as at 30th June, 2015. The study relied on a descriptive approach for the purpose of description of the responses of the sample of the study about their views on the level of corporate governance in companies listed on the NSE. The study relied on both primary and secondary data. Descriptive statistics was computed for all the variables to ensure quality of data. Regression was used as a main tool to measure the relationship between the dependent variable and the independent variable. Correlation was used to measure the significance level of the relationship. The study found that the board of Directors positively and significantly influenced the share price, responsibilities effective framework for corporate governance positively and insignificantly influenced the share price, role of stakeholders in corporate governance positively and insignificantly influenced the share price, disclosure and transparency negatively and significantly influenced the share price, responsibilities of the rights of shareholders and key ownership functions positively and insignificantly influenced the share price, and that equal treatment of shareholders positively and significantly influenced the share price of companies at NSE. The study recommended that the management of the listed firms should strive to achieve an optimal board of Directors for their firms in order to enhance their firms’ value hence leading to an increase in their firms’ share prices.