Influence of Corporate Control and Capital Structure on the Performance of Firms Listed at the Nairobi Security Exchange

Abstract

This study aimed at establishing the influence of corporate control and capital structure on performance of firms listed at the Nairobi Securities Exchange. The focus was on how the link concerning corporate control and corporate’s returns is influenced by debt-equity structure for these listed firms. The paper tested the hypothesis that there is no significant intervening effect of capital structure on the nexus between corporate control and firm performance as measured by ROA and Tobin Q. The theory applied were agency theory and trade off theory. The study applied census survey for sixty four firms listed at the NSE. Leverage was used as a measure of capital structure while ROA and Tobin Q were used to measure corporate value. Regression analysis and correlation analysis were used to test the hypotheses. The key study variables of the listed companies were subjected to descriptive statistics and the results revealed a significant positive relationship between the variables. The intervening effect of debt-equity ratio was found to be significant in the relationship between in corporate control and corporate value. The study findings were in line with previous research findings also provided further insight on the contribution of independent variable, corporate control on the dependent variable, corporate value. Analyst and investors can utilize the findings to identify the key corporate control mechanism in financial markets.

Keywords: Corporate control, capital structure, agency theory, trade off theory, firm performance.