Managerial entrenchment and firms financing choices: a study of non-financing firms listed on Kenya’s Nairobi Securities Exchange
Date
2013
Authors
Maimba, Jane Wanjeri
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
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.
Description
Submitted in Partial Fulfillment of the Requirements for the Degree of Master of Commerce
Keywords
Managerial Entrenchment, Firms Financing Choices, Non-Financing Firms, Nairobi Securities Exchange