The Moderating Effect of Ownership Structure in the Relationship between Corporate Governance and Value of Non-Financial Firms Listed at the Nairobi Securities Exchange

Abstract

The ownership structure is a crucial aspect of corporate governance and firm value, understanding its implications allows companies to make informed decisions to enhance their value and governance practices. Therefore, this study empirically investigated if ownership structure influences the relationship between corporate governance and firm value. A composite index was developed to evaluate corporate governance, considering board independence, size, diversity, and audit committee independence, while Tobin’s Q was employed to estimate non-financial stock exchange firms’ value. Additionally, ownership structure was defined by three main categories: government ownership, managerial ownership, and foreign ownership. The study utilized a descriptive longitudinal research method to analyze secondary data, employing statistical measures like mean, median, standard deviation, and skewness and conducting a correlation test. Moreover, diagnostic tests were utilized to assess normality, multicollinearity, heteroskedasticity, stationarity, and autocorrelation, determining a random effects model as the most suitable. Correlation was also conducted using Pearson’s coefficient (r) to measure the strength and direction of the linear relationship. The empirical results exhibited that ownership structure moderated the relationship between corporate governance and firm value.