Managerial entrenchment and firms financing choices: a study of non-financing firms listed on Kenya’s Nairobi Securities Exchange
In this study, corporate governance is portrayed as spreading its tentacles wide into the public sector via the institutional framework. Therefore it would be myopic to view corporate governance within the confines of a company. Out of this acknowledgement, the study champions the cause of good corporate governance by highlighting the consequences of poor corporate governance. In particular, the study concerns itself with how poor corporate governance influences firms’ leverage decisions. In order to carry out this investigation, poor corporate governance is fashioned as managerial entrenchment and data for Kenyan firms listed on the N.S.E is collected. Upon subjecting Kenyan data to panel techniques, results reveal that entrenchment is rife among Kenyan companies. Entrenchment is perpetrated through ownership concentration, board size, CEO tenure, number of outsiders on a firm’s board, executive equity ownership levels and executive compensation. Nevertheless, its occurrence is due to the ineffectiveness of debt which is shown by managers’ ability to court more debt rather than less debt which contradicts entrenchment theory. Notwithstanding this, debt is still able to wield its disciplinary power when managers try to entrench themselves via a long tenure in office and executive pay. Further, results show that large shareholders in Kenyan companies are entrenched which encourages managerial entrenchment since they cause companies to adopt low debt levels. In addition, it emerges that in the agricultural segment of the N.S.E, managers exploit firms’ board size and a long tenure in office to entrench themselves. In the commercial and services segment, entrenchment is perpetrated through large shareholders and executive ownership. In the industrial and allied segment, managers take advantage of a long tenure in office and their shareholding in firms to act opportunistically. In the A.I.M.S segment, managers entrench themselves through board size and through manipulating the number of non-executives on their firms’ boards.