Relationship between the Board of Directors' Characteristics and the Capital Structures of Companies Listed In Nairobi Securities Exchange

Abstract

Boards of directors' decisions have a significant impact on capital structure and hence the performance of firms. However, it is not clear how performance is affected by the boards' composition. For instance, some firms have performed well in Nairobi Securities Market (NSE) even as others have gone under receivership. The study aimed at highlighting the relationship between board decisions' and debt-equity ratio which is a measure of performance when they want to make investment. The research was based on census of forty-eight listed companies (48) at the Nairobi Securities Exchange in 2012. From these, secondary data was collected for each individual company for the period. Analysis was done using descriptive and inferential statistics using correlation and Chi-square methods. The research results using Pearson's correlation at 10% confidence interval established that gender had a positive relationship with debt-equity ratio with r = 0.197 p- value of 0.073. This implied that, with more male directors employed by a company, the debt-equity ratio increased and this was very significant as it had an impact on debt-equity ratios of listed companies. This was further confirmed by the Chi-square relationship with p-value 0.010 which was less than the critical value of 1% (x=9.348, df=3, p=0.010). It was established that profession had a positive relationship to debt-equity ratio with r=0.117 and p-value of 0.288.