The Impact of Corporate Governance on Share Prices: Case of Companies Listed in the Nairobi Securities Exchange

Abstract

The purpose of the study was to determine the impact of corporate governance on the share prices of companies listed in the NSE.lhe research design used in this study was descriptive. The population chosen for this study was the companies listed in the Nairobi Securities F.xchangc. The use of the listed firms was due to data availability and reliability because all the quoted companies are required by law and NSE rules to file reports with the exchange and also CMA. The study covered a period of two years from Dec 2010 to 201 l.Tbe sample chosen was 30 companies chosen as a representative sample of the population out of 50 companies listed in the NSE. Tlie selection was based on the companies listed in the Nairobi Securities Exchange for the year Dec 2010 to 2011. Companies which have been dc-listed were not included in this study. The study found that from the board structure, majority of the respondents indicated that there was limited access to large board sizes that hinder the discussion of sensitive issues in the organization. The study found out that majority of the companies listed in the Nairobi Securities Exchange had adopted good corporate governance practices which enhanced balance of power. It was established that most companies ensured that proportion of outside directors had been greatly implemented in the organization; the required board size and the number of meeting in a year were also observed as required. ITie regression analysis further established that there was a significant relationship between share price and corporate governance practices. ITie study concluded that the companies had exhibited an increase in implementation of good corporate governance practices which can be attributed to the high level of adoption of the guidelines, board size, proportion of outside directors and the number of meetings in a year, lhc study also concluded that there is a significant relationship between share price and corporate governance practices; this means that, companies practicing good corporate governance practices are likely to enjoy high share prices. The study recommended thatcompanies should highly consider die implementation of good corporate governance practices since they ensure balance of power and contribute to a strong association with the firm’s profitability and market value. Managerial ownership also operates without showing any evidence of a negative inflection point. Moreover, CMA guidelines should be implemented in these companies as it contributes to good corporate governance.