The Relationship Between Ownership Structure and Firm Performance: an Empirical Analysis of Listed Companies in Kenya
THE EFFECTS OF OWNERSHIP STRUCTURE AND BOARD EFFECTIVENESS ON FIRM PERFORMANCE: NEW EVIDENCE FROM KENYA
Vincent O. Ongore, PhD
Assistant Commissioner
Kenya Revenue Authority
P.O. Box 48240-00100, GPO
Phone: + 254 (20) 310900
Mobile: +254 723854796
Nairobi.
Email: Vincent.ongore@kra.go.ke
Abstract
Research on corporate governance is very thin on the role of owners on corporate performance, especially how risk-taking orientation of owners comes to bear on decision making processes of the firm. The Board has been given inordinate attention in corporate governance literature, and yet a lot of corporate failures and malfeasance have occurred in spite of effective boards. This raises the question of whether the board alone is sufficient in corporate governance. The study therefore, investigated the combined effects of ownership structure and board effectiveness on performance of listed companies in Kenya using agency theory as an analytical framework. Ownership structure was operationalized in terms of ownership concentration and ownership identity, while elements of board effectiveness were leadership, stewardship, monitoring and reporting. Measures of performance were Return on Assets, Return on Equity and Dividend Yield. Using Pearson’s Product Moment Correlation, Logistic Regression and Step-Wise Regression, the study found that Ownership Concentration and Government Ownership have significant negative relationships with firm performance. On the other hand, Foreign Ownership, Diffuse Ownership, Corporation Ownership, and Manager Ownership were found to have significant positive relationships with firm performance. The Board has no effect on firm performance.
Key Words: Ownership Structure; Ownership Concentration; Ownership Identity; Firm Performance; Board Effectiveness
INTRODUCTION AND RESEARCH OBJECTIVE
This paper reports the findings of a study conducted to establish the combined effects of ownership structure and board effectiveness on
Vincent O. Ongore, PhD
Assistant Commissioner
Kenya Revenue Authority
P.O. Box 48240-00100, GPO
Phone: + 254 (20) 310900
Mobile: +254 723854796
Nairobi.
Email: Vincent.ongore@kra.go.ke
Abstract
Research on corporate governance is very thin on the role of owners on corporate performance, especially how risk-taking orientation of owners comes to bear on decision making processes of the firm. The Board has been given inordinate attention in corporate governance literature, and yet a lot of corporate failures and malfeasance have occurred in spite of effective boards. This raises the question of whether the board alone is sufficient in corporate governance. The study therefore, investigated the combined effects of ownership structure and board effectiveness on performance of listed companies in Kenya using agency theory as an analytical framework. Ownership structure was operationalized in terms of ownership concentration and ownership identity, while elements of board effectiveness were leadership, stewardship, monitoring and reporting. Measures of performance were Return on Assets, Return on Equity and Dividend Yield. Using Pearson’s Product Moment Correlation, Logistic Regression and Step-Wise Regression, the study found that Ownership Concentration and Government Ownership have significant negative relationships with firm performance. On the other hand, Foreign Ownership, Diffuse Ownership, Corporation Ownership, and Manager Ownership were found to have significant positive relationships with firm performance. The Board has no effect on firm performance.
Key Words: Ownership Structure; Ownership Concentration; Ownership Identity; Firm Performance; Board Effectiveness
INTRODUCTION AND RESEARCH OBJECTIVE
This paper reports the findings of a study conducted to establish the combined effects of ownership structure and board effectiveness on