Effect of Ownership Concentration on Stock Returns of Firms Listed at the Nairobi Securities Exchange

Abstract

Ownership concentration leads to entrenchment by majority owners, makes the company unsafe and unappealing investment, leading to a decline in stock demand and price. There is a dearth of research on ownership concentration and its impact on stock market returns and existing literature reported conflicting outcomes. This study examined the effect of ownership concentration on stock returns of firms listed at the Nairobi Securities Exchange from 2006 to 2019.A census survey was conducted on sixty-seven companies listed at Nairobi Securities Exchange and data was obtained from sixty firms. The study adopted a panel longitudinal research design to analyze the secondary panel data. Fixed effects model was used to conduct regression analysis for the unbalanced panel data. Hypotheses test results found a negative and significant link between ownership concentration and stock returns. The study recommends that listed companies should adopt appropriate levels of ownership concentration and caution corporate managers against high levels of ownership concentration which adversely affect stock returns.

Keywords: Ownership Concentration, Stock Returns, Fixed Effects Model, Agency Theory