The nexus between corporate governance, asset structure, and value of listed firms: evidence from Kenya
-
DOIhttp://dx.doi.org/10.21511/imfi.20(2).2023.09
-
Article InfoVolume 20 2023, Issue #2, pp. 102-115
- 420 Views
-
189 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Shareholders of listed firms are guaranteed reasonable security prices due to enhanced firm value, which translates to global wealth creation. However, firms’ value has declined globally. Therefore, this paper uses a causal-comparative design and panel data regression model to explore the nexus between corporate governance, asset structure, and value of Kenyan-listed firms from 2010 to 2019. Secondary data were extricated from audited financial reports of 51 firms. As hypothesized, the results show a positive relationship between board composition and firm value with a regression coefficient (0.17, p < .05). The composition of the audit committee is positively associated with firm value with a regression coefficient of (0.629, p < .05). A tangible and notable correlation exists between protecting shareholders’ rights and firm value with a regression coefficient of (0.28, p < .05), while financial disclosure was significant with a regression coefficient of (1.15, p < .05). Plant, property and equipment positively and significantly affect firm value with a regression coefficient of (2.10, p < .05), while financial assets had (0.28, p < .05), which was significant. Current assets positively and significantly affect firm value with a regression coefficient of (1.87, p < .05). Finally, the results reveal a positive but insignificant correlation between firm size and value with a regression coefficient of (0.22, p < .05), while the relationship between firm age and value is negative but insignificant with a regression coefficient of (–0.003, p < .05). The study recommends that sufficient managerial effort be directed towards corporate governance and asset structure to maximize shareholder value.
- Keywords
-
JEL Classification (Paper profile tab)L25, G34, M40
-
References50
-
Tables11
-
Figures0
-
- Table 1. Stationarity test results
- Table 2. Normality test results
- Table 3. Heteroscedasticity test results
- Table 4. Variance inflation factor test results
- Table 5. Autocorrelation test results
- Table 6. Model specification test results
- Table 7. Data characteristics
- Table 8. Correction matrix
- Table 9. Goodness of fit of the model
- Table 10. Independent variables and dependent variables: Individual significance level of the variables
- Table 11. Goodness of fit of the model
-
- Agiomirgianakis, G., Voulgaris, F., & Papadogonas, T. (2006). Financial factors affecting profitability and employment growth: the case of Greek manufacturing. International Journal of Financial Services Management, 1(2-3), 232-242.
- Akinleye, G. T., & Dadepo, A. O. (2019). Assets utilization and performance of manufacturing firms in Nigeria. International Journal of Business and Management, 14(4), 107-115.
- Al-Maghzom, A., Hussainey, K., & Aly, D. A. (2016). Value relevance of voluntary risk disclosure levels: Evidence from Saudi banks. Accounting & Taxation, 8(1), 1-25.
- Amalia, E., Rodoni, A., & Tahliani, H. (2018). Good Governance in Strengthening the Performance of Zakat Institutions in Indonesia. KnE Social Sciences, 223-241.
- Ararat, M., Black, B. S., & Yurtoglu, B. B. (2017). The effect of corporate governance on firm value and profitability: Time-series evidence from Turkey. Emerging Markets Review, 30, 113-132.
- Balsmeier, B., Buchwald, A., & Stiebale, J. (2014). Outside directors on the board and innovative firm performance. Research Policy, 43(10), 1800-1815.
- Bremert, M., & Schulten, A. (2008). The impact of supervisory board characteristics on firm performance. None.
- Calvo, J. L. (2006). Testing Gibrat’s law for small, young, and innovative firms. Small Business Economics, 26(2), 117-123.
- Carcello, J. V., Hermanson, D. R., & Neal, T. L. (2002). Disclosures in audit committee charters and reports. Accounting Horizons, 16(4), 291-304.
- Chan, K. C., & Li, J. (2008). Audit committee and firm value: Evidence on outside top executives as expert-independent directors. Corporate Governance: An International Review, 16(1), 16-31.
- Cheng, S. (2008). Board size and the variability of corporate performance. Journal of Financial Economics, 87(1), 157-176.
- Coad, A., Holm, J. R., Krafft, J., & Quatraro, F. (2018). Firm age and performance. Journal of Evolutionary Economics, 28, 1-11.
- Daniel, K., & Titman, S. (2012). Testing factor-model explanations of market anomalies. Critical Finance Review, 1(1), 103-139.
- Debby, J. F., Mukhtaruddin, M., Yuniarti, E., Saputra, D., & Abukosim, A. (2014). Good Corporate Governance, Company’s Characteristics, and Firm’s Value: Empirical Study of Listed Banking on Indonesian Stock Exchange. GSTF Journal on Business Review (GBR), 3(4), 81-88.
- De-LaCruz, A., Medina, A., & Tang, Y. (2019. Owners of the World Have Listed Companies. Paris: OECD Capital Market Series.
- Doidge, C., Karolyi, G. A., & Stulz, R. M. (2017). The US listing gap. Journal of Financial Economics, 123(3), 464-487.
- Erawati, N. M. A., & Sudana, I. P. (2005). Intangible Assets. Company Values and Financial Performance.
- Erickson, J., Park, Y. W., Reising, J., & Shin, H. H. (2005). Board composition and firm value under concentrated ownership: the Canadian evidence. Pacific-Basin Finance Journal, 13(4), 387-410.
- Favara, G., Morellec, E., Schroth, E., & Valta, P. (2017). Debt enforcement, investment, and risk-taking across countries. Journal of Financial Economics, 123(1), 22-41.
- Fernandes, N. (2008). EC: Board compensation and firm performance: The role of “independent” board members. Journal of Multinational Financial Management, 18(1), 30-44.
- Ghafoorifard, M., Sheykh, B., Shakibaee, M., & Joshaghan, N. S. (2014). Assessing the relationship between firm size, age, and financial performance in listed companies on Tehran Stock Exchange. International Journal of Scientific Management and Development, 2(11), 631-635.
- Goodstein, J., Gautam, K., & Boeker, W. (1994). The effects of board size and diversity on strategic change. Strategic Management Journal, 15(3), 241-250.
- Hagedoorn, J., & Cloodt, M. (2003). Measuring innovative performance: is there an advantage in using multiple indicators? Research Policy, 32(8), 1365-1379.
- Hamdan, A. M. M., & Mushtaha, S. M. S. (2011). The relationship between audit committee characteristics and type of auditor’s report (an empirical study on the public shareholding industrial companies listed at Amman Bourse). The Arab Journal of Accounting, 14(01).
- Harc, M. (2015). The relationship between tangible assets and capital structure of small and medium-sized companies in Croatia. Ekonomski Vjesnik/Econviews: Review Oof Contemporary Business, Entrepreneurship, And Economic Issues, 28(1), 213-224.
- Hossain, M., Ahmed, K., & Godfrey, J. M. (2005). Investment opportunity set and voluntary disclosure of prospective information: A simultaneous equations approach. Journal of Business Finance & Accounting, 32(5-6), 871-907.
- Hossain, S. K., Khan, M. R., & Haque, M. M. (2018). Corporate voluntary disclosure practices and its association with corporate attributes: an empirical investigation of listed and non-listed commercial banks in Bangladesh. International Journal of Managerial and Financial Accounting, 10(4), 331-351.
- Isık, O., Aydın Unal, E. and Unal, Y. (2017) “The effect of firm size on profitability: Evidence from Turkish Manufacturing Sector,” Pressacademia, 6(4), pp. 301–308.
- Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4), 305-360.
- Lantz, J. S., & Sahut, J. M. (2005). R&D investment and the financial performance of technological firms. International Journal of Business, 10(3), 251.
- Leuz, C., Nanda, D., & Wysocki, P. D. (2003). Earnings management and investor protection: an international comparison. Journal of Financial Economics, 69(3), 505-527.
- Li, H., & Wang, W. (2014). Impact of Intangible Assets on Profitability of Hong Kong Listed Information Technology Companies. Business and Economic Research, 4(2), 98-113.
- Mawih, K. A. (2014). Effects of assets structure on the financial performance: Evidence from sultanate of Oman. Journal of US-China Public Administration, 11(2), 170-179.
- McLean, R. D., Zhang, T., & Zhao, M. (2012). Why does the law matter? Investor protection and its effects on investment, finance, and growth. The Journal of Finance, 67(1), 313-350.
- Moldoveanu, M., & Martin, R. (2001). Agency theory and the design of efficient governance mechanisms. Joint Committee on Corporate Governance, 3(5), 430.
- Mwaniki, G., & Omagwa, J. (2017). Asset Structure and Financial Performance: A Case of Firms Quoted Under Commercial and Services Sector at the Nairobi Securities Exchange, Kenya. Research Journal of Finance and Accounting, 8(4), 687-699.
- Oeyono, J., Samy, M., & Bampton, R. (2011). An examination of corporate social responsibility and financial performance: A study of the top 50 Indonesian listed corporations. Journal of Global Responsibility, 2(1), 100-112.
- Okwo, I. M., Okelue, U. D., & Nweze, A. U. (2012). Investment in fixed assets and firm profitability: Evidence from the Nigerian brewery industry. European Journal of Business and Management, 4(20), 10-17.
- Olayinka, O. M. (2019). Audit Committee and Firms Performance in Nigeria: Case Study of Selected Nigerian Banks. International Journal of Scientific and Research Publications (IJSRP), 9(9), 88-94.
- Pástor, L., & Veronesi, P. (2003). Stock prices and IPO waves (NBER Working Paper No. w9858).
- Pittiglio, R., Bruni, S., & Reganati, F. (2014). Heterogeneity in firm performance during an economic crisis. Business, Management and Economics Engineering, 12(1), 1-14.
- Prasetyantoko, A., & Parmono, R. (2008). A Comparison of financial performance in the banking sector: Some evidence from Omani commercial banks. International Research Journal of Finance and Economics, 3(1), 1-22.
- Puni, A. (2015). Do board committees affect corporate financial performance? Evidence from listed companies in Ghana. International Journal of Business and Management Review, 3(5), 14-25.
- Rashid, A. (2018). Board independence and firm performance: Evidence from Bangladesh. Future Business Journal, 4(1), 34-49.
- Rizki, A., & Jasmine, A. (2018). Investor protection, corporate governance, firm value: research on the companies in Asia. KnE Social Sciences, 547-565.
- Salem, W. F., Metawe, S. A., Youssef, A. A., & Mohamed, M. B. (2019). Boards of directors’ characteristics and firm value: a comparative study between Egypt and USA. Open Access Library Journal, 6(4), 1-33.
- Stam, E., & Wennberg, K. (2009). The roles of R&D in new firm growth. Small Business Economics, 33, 77-89.
- Talbi, D., & Omri, M. A. (2014). Voluntary disclosure frequency and cost of debt: an analysis in the Tunisian context. International Journal of Managerial and Financial Accounting, 6(2), 167-174.
- Uyar, A., & Kılıç, M. (2012). Value relevance of voluntary disclosure: evidence from Turkish firms. Journal of Intellectual Capital, 13(3), 363-376.
- Yahaya, K. A., Fagbemi, T. O., & Oyeniyi, K. K. (2015). Effect of International Financial Reporting Standards on the Financial Statements of Nigerian Banks. Journal of Agricultural Economics, Environment, and Social Sciences, 1(1), 18-29.