Ownership Structure and Firm Value

Henry Kimathi Mukaria; Mirie Mwangi; Duncan Elly Ochieng; Kennedy Okiro

Henry Kimathi Mukaria Department of Finance and Accounting, School of Business, University of Nairobi
Mirie Mwangi Department of Finance and Accounting, School of Business, University of Nairobi
Duncan Elly Ochieng Department of Finance and Accounting, School of Business, University of Nairobi
Kennedy Okiro Department of Finance and Accounting, School of Business, University of Nairobi

Abstract

Abstract

Purpose: This paper investigate the relationship between ownership structure and value of listed firms at the Nairobi Securities Exchange.

Methodology: The study targeted 64 listed firms as at December 2017. Panel data analysis for pooled ordinary least squares, fixed and random effect models was employed. Moreover, a feasible generalized least square estimator was adopted in attempt to attain robust results.

Findings: The study findings revealed managerial ownership has a statistically significant negative effect on firm value, as sign of eroding effect on wealth. By contrast, institutional and foreign ownership depict statistically significant positive effect on value which depict firm value enhancement by institutional and foreign investors. The study findings are considered robust and reliable as were found consistent across all the approximation models.

Implications: The study conclusion was that the diverse constituents of shareholders influence firm value differently. Specifically, firms owned by firm directors appear to be worth less and can be likened to agency conflicts value eroding effect. However, foreign and institutional investors are valued more probably in association to institution of effective monitoring mechanisms.

Value: The article extends empirical insights in Kenyan context that assist to resolve previous research inconsistences on nature of specific ownership class and firm value. Additionally, the findings as well reignites the debate on the practise effectiveness for top managers stock options compensation schemes. Moreover, policy formulators to continually devise governance mechanism that lure foreign and institutional investors in attempt to protect investors’ wealth.

Keywords: Ownership Structure, Managerial Ownership, Institutional Investors, Foreign Shareholders, Firm Value