Effect Of Ownership Concentration On Firm Performance Of Companies Listed At The Nairobi Security Exchange

Abstract

The recently published huge losses and numerous unresolved disputes resulting in court have thrust corporate governance practices into the spotlight. This raises questions on the effect of corporate governance on financial performance of firms. Much is required especially in the Kenyan Context to find out the combination of ownership structure that is best for better financial performance. This study sought to investigate the effect of ownership concentration on firm performance of listed companies at the Nairobi securities exchange. The study specifically sought to establish the effect of management ownership concentration, government ownership concentration and foreign ownership concentration on firm performance of listed companies at the Nairobi securities exchange. Firm leverage and firm size were used as control variables in the study. The study adopted descriptive Research design. The target population for the study was the 63 listed firms at the NSE in the year 2015. An ordinary least square regression model was used to establish the relationship between the study variables. The results revealed that management ownership had a negative effect on the performance of companies listed at the Nairobi security exchange. The study established that the coefficient for government ownership was 0.242 which means that government ownership had a positive effect on performance of companies listed at the Nairobi security exchange. The study also found that foreign ownership had a coefficient of 0.848 meaning that it had a significant and positive effect on the performance of companies listed at the Nairobi security exchange. Further the study found that size had a negative and significant effect on the performance of companies listed at the Nairobi security exchange. The study established that leverage had a positive and significant effect on the performance of companies listed at the Nairobi security exchange. The study concluded that foreign ownership had the greatest effect on the performance of companies listed at the Nairobi security exchange followed by leverage then government ownership then management ownership while the size of the firm had the least effect on the performance of companies listed at the Nairobi security exchange. The study recommends that the firm, managers should be encouraged to own shares in the company they are managing, that the government should therefore make a deliberate effort to minimize asymmetry in the country as this could cause market failure. In this regard the government can use various signaling devices to bring confidence into the market and that firms should encourage foreign investors to invest in their firms as the higher levels of foreign ownership would lead to better firm profitability hence improve the performance of the firm.