Abstract
This investigation looked at the link between firm ownership characteristics and long-run return on firms that issued equity at the Nairobi Securities Exchange (NSE) in Kenya. The study covered 12 firms that issued shares in the NSE market from 2006-2008. Ownership characteristics included (state ownership, institutional Ownership, foreign Ownership, big five shareholders, market capitalization, age of the firm and Leverage of the firm) in relation to the average return. The study tested whether each of the firm ownership characteristics influenced long-run performance. Annual return for these companies was based on market return for five years after the firm’s equity shares were issued. The long-run performance was compared with three benchmarks, namely, NSE index, CAPM and Matching firms. Seven hypotheses were developed for the study. Simple-liner and multi-linear regression analyses based on panel data were carried out to relate the extended run return on shares issued. The result of the survey showed that issuing firms performed better than non-issuing firms. These issuing firms also performed better in comparison to CAPM. However, the issuing firms performed worse than NSEI. In conclusion, the long-run performance of equity issued at the NSE does not necessarily underperform relative to non-issuing establishments.
Highlights
In corporate governance, the ownership structure is a crucial mechanism
The study focuses on four ownership structures: shares owned by the government, shares owned by institutions, shares owned by foreign investors and shares held by leading shareholders for each firm that issued shares at the Nairobi Securities Exchange from 2006 to 2013
This study has the following objectives: How do these firms in the long run compared with Nairobi Securities Exchange Market Index (NSEMI) as a benchmark for their returns? How do these firms compare in terms of long-run return with firms that never issued equity over the study period here described as matching firms (MF) as a benchmark? Where Capital Asset Pricing Model (CAPM) is used as a benchmark, how do these firms that issued equity compare in long-run returns? Does any of the seven variables have any statistically significant effect on long-run return for these companies that gave equity? This study assesses five years average returns after the issue of equity by these 12 firms
Summary
The ownership structure is a crucial mechanism. Several studies in this area have concluded that ownership structure, if applied appropriately, can be an efficient way of decreasing agency costs, leading to significant corporate governance problems Several other null hypotheses were developed to determine the link between the average return of establishments that issued equity and firm ownership structure characterized by state share ownership, institutional share ownership, foreign share ownership, the big five-share Ownership, Leverage of the firms, age of the firms and market capitalization. All these were based on a 5% level of significance. The study used the t-test to test for individual variables’ significance and F-test for overall significance on the independent variables
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