Internal Corporate Governance Mechanism And Firms Value Of Selected Companies Listed At The Nairobi Securities Exchange, Kenya

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Manufacturing, construction, and allied firms at the Nairobi Securities Exchange (NSE) faced significant challenges, as evidenced by a decline in market value over recent years. Despite effective corporate governance beneficial value in instilling the confidence of investors and enhancing the market value, empirical studies specifically focusing on the manufacturing, construction, and allied sector in Kenya were lacking. These sectors were important in the Big Four Agenda, specifically in affordable housing and manufacturing policies, with manufacturing expected to grow to 15% of GDP by 2030. Drawing from recent market data, it was evident that companies such as Unga Limited, Eveready, Mumias Sugar, Bamburi Cement, Crown Paints, and East African Portland experienced stagnation or decline in their firm value, highlighting the need for a comprehensive examination of corporate governance mechanisms within the sector. This study's main objective was to ascertain how internal corporate governance practices affected the selected firm value in the NSE. The specific objectives included examining the effect of board size, ownership structure, and board independence on firm value, determining the mediating effect of profitability and the moderating effect of foreign capital flows on the relationship between internal corporate governance mechanisms and firm value. The study variables were anchored on Agency Theory, Transaction Cost Theory, Stakeholder Theory, Knight's Theory of Profit, and Efficient Market Theory. The research opted for the explanatory design and collated panel data for 14 firms at the NSE covering the years 2014 to 2023. Data collection relied on secondary sources, primarily annual financial reports, to identify trends and patterns. Data analysis encompassed both descriptive and inferential techniques, including means, standard deviations, and panel regression analysis using the STATA software. Diagnostic tests were conducted to validate the model and address potential issues such as multicollinearity, normality, stationarity, heteroscedasticity, and model specification. The study tested various hypotheses and found that board size positively affected firm value (p = 0.001 < 0.05, t = 3.41 > 6, β = 0.075), with the optimal size around nine members. Board independence was positively correlated with firm value (p = 0.006 < 0.05, t = 2.76 > 6, β = 0.008), emphasizing the importance of having independent directors. The study also found that ownership structure, while balanced, did not significantly influence firm value (p = 0.0287 > 0.05, t = 1.12 < 1.96, β = 0.065), indicating other governance mechanisms may be more critical. The mediating variable profitability significantly mediated corporate governance and firm value association with a β =0.344, (p = 0.025 < 0.05). The moderating variable foreign capital inflow was found to be a positive and significant determinant of foreign capital inflow. It explained 10.002% variance of firm value with a Beta of 1.85831. Recommendations for corporate managers include optimizing board size, increasing board independence, and enhancing profitability strategies. Policymakers are advised to promote balanced ownership structures and foreign investment. Stakeholders should advocate for governance practices that align with these findings to ensure sustainable firm value.