The Relationship Between Ownership Structure and Firm Performance: an Empirical Analysis of Listed Companies in Kenya

5536 WordsOct 3, 201023 Pages
THE EFFECTS OF OWNERSHIP STRUCTURE AND BOARD EFFECTIVENESS ON FIRM PERFORMANCE: NEW EVIDENCE FROM KENYA Vincent O. Ongore, PhD Assistant Commissioner Kenya Revenue Authority P.O. Box 48240-00100, GPO Phone: + 254 (20) 310900 Mobile: +254 723854796 Nairobi. Email: Vincent.ongore@kra.go.ke Abstract Research on corporate governance is very thin on the role of owners on corporate performance, especially how risk-taking orientation of owners comes to bear on decision making processes of the firm. The Board has been given inordinate attention in corporate governance literature, and yet a lot of corporate failures and malfeasance have occurred in spite of effective boards. This raises the question of whether the board alone is…show more content…
Related to these disclosures of alleged gross corporate malfeasance, there was also a more widespread erosion of standards throughout the global markets, with questionable and unethical practices being accepted. The net effect has been to undermine the faith shareholders and investors have in the integrity of the world’s capital markets. Researchers in corporate governance (Donaldson, 2005; Huse, 2005; Frentrop, 2003) have reported that there is still lack of concurrence on the ideal corporate governance structure that could safeguard shareholders’ assets while promoting wealth creation ventures. The corporate governance debate has largely centered on the powers of the Board of Directors vis-à-vis the discretion of top management in decision making processes. The traditional approach to corporate governance has typically ignored the unique influence that firm owners exert on the board, and by extension, the top management, to behave or make decisions in a particular way. Consequently, studies on corporate governance (Cubbin and Leech, 1982; Monks, 1998; Jensen, 2000; Shleifer, 2001; Frentrop, 2003; Donaldson, 2005; Huse, 2005) have not comprehensively identified and dealt with the complexities that are inherent in corporate governance processes. Perhaps, this is where the greatest problem of corporate governance lies. Owner preferences and investment choices are influenced by, among other factors, the extent to which they can take risks. To the extent
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