Corporate Governance, asset structure, and value of firms listed Nairobi Securities Exchange, Kenya

Abstract

This study examines the dynamics of corporate governance and asset structure on the valuation of firms listed on the Nairobi Securities Exchange (NSE) in Kenya, set against the backdrop of a global financial landscape where the estimated value of listed firms is around 80 trillion United States dollars. Despite significant intrinsic worth, many firms have experienced a decline in market value, prompting this investigation. Utilizing a positivist perspective, the research adopted a causal-comparative design, focusing on a target population of 64 firms. Secondary data was sourced from audited annual financial reports submitted to the NSE and the Capital Markets Authority covering 2010 to 2019. The study used panel data analysis and multiple linear regression techniques to examine the data. Additionally, various diagnostic tests were conducted to assess the regression model's assumptions, including normality, heteroscedasticity, multicollinearity, and linearity tests. These tests helped to establish the degree of reliability and validity of the analytical results, thus creating a sound basis for considering the impact of corporate governance and asset structure on firms’ valuation in the Kenyan setting. The impact of corporate governance and asset structure on the value of firms listed in the NSE, was analyzed using a random-effect model, indicating that Corporate Governance significantly influences firms' value, indicating that stronger governance practices enhance firm valuation. Similarly, asset structure was shown to significantly affect firm value, suggesting that the composition and quality of assets are critical determinants of how firms are valued in the market. Both corporate governance and asset structure serve as key predictors of a firm's overall value, emphasizing the importance of these factors in investment decisions. The study identified the role of financial performance as a moderator with regard to the impact of corporate governance, asset structure, and firm value. This implies that strategies enhancing governance and assets can result into better financial performance and, hence, firm value. The study revealed further that the macro environment variables did not exercise any significant moderating influence on the corporate governance firm value nexus. Although, they showed a significant moderating role in the case of the impact of asset structure on firm value and the emergence of the fact that external economic conditions play a role in modulating the effects of varying asset structure on firm value. These findings have significant implications for investors and the management of the Capital Markets Authority, indicating that improving corporate governance and optimizing asset structure can result in better financial performance and increased firm valuation. Investors may benefit from considering these factors when making investment decisions, while regulatory bodies may focus on fostering better governance practices and asset management strategies among listed firms. The study advocates for a strategic focus on enhancing firm value through improvements in corporate governance and asset structure rather than depending on macroeconomic factors. This finding emphasizes the importance of internal management practices in driving firm valuation, suggesting that firms may achieve more significant outcomes by prioritizing these areas. The study lays the groundwork for further exploration into the interconnections between corporate governance, asset structure, and firm value. Future research can build on these findings, potentially uncovering additional dimensions and insights related to these critical factors.