Board characteristics and capital structure of non-financial firms listed on Nairobi Securities Exchange, Kenya: moderation by industry

Abstract

This study aims to examine the influence of board characteristics on the capital structure of non-financial firms listed on the Nairobi Securities Exchange (NSE), with industry sector as a moderating factor. The study focused on board attributes such as size, independence, expertise, and gender diversity, assessing their impact on firms’ capital structure decisions within the Kenyan context. The study was informed by agency theory, trade-off theory, and pecking order theory, which provided a comprehensive framework for understanding the relationship between board attributes and financial decisions. A quantitative research methodology was employed, utilizing secondary data from 46 non-financial NSE-listed firms over ten years (2015–2024). Panel data regression analysis was conducted to examine relationships, with diagnostic tests addressing potential statistical issues such as multicollinearity and heteroscedasticity. Data was sourced from audited financial statements of individual non-financial firms listed on NSE which ensured reliability and validity final total observation was 320. The findings indicate that larger boards are significant and positively associated with higher debt-to-equity ratio, indicating that larger boards tend to be more diversified and adopt more aggressive capital structures. Board independence was also significant and positively correlated with debt-to-equity ratio, suggesting that independent directors may be more inclined to endorse higher debt levels. Gender diversity was found to have significant and positive correlation, leading firms on gender-diverse boards to maintain higher debt levels, and board expertise was found to be insignificant. Furthermore, the industry sector was found to moderate the relationship between board characteristics and capital structure, highlighting the sector-specific nature of governance and financial strategies. This study contributes to the understanding of corporate governance in emerging markets, offering valuable insights into how board dynamics influence capital structure decisions in Kenya. The findings are of importance to corporate managers, investors, and policymakers, providing guidance on optimizing governance frameworks and financial strategies in emerging economies.