Capital Structure, Ownership Structure and Firm Value: An Econometric Panel Analysis of Firms Listed in Kenya
Journal Title: Scholars Journal of Economics, Business and Management - Year 2015, Vol 2, Issue 5
Abstract
Abstract: The purpose of this study is to explore the effect of capital structure and ownership structure on market value of listed firms in Kenya. In this study, data of companies that were active in Nairobi Securities Exchange (NSE) between the years 2007 to 2012 is used. Capital structure is surrogated by total long term debt to total capital ratio, while ownership structure is represented by summation of amount of ownership of five greatest shareholders of a company relative to the total shareholding and firm value is proxied by Tobin’s Q. Before empirical estimations, data was subjected to the Levin- Lin- Chu panel unit root test. The results indicated that all variables were integrated of order zero (p = .000), that is, are stationary at levels. Panel correlation and multiple regression methods were used in the empirical analysis. Results indicate that capital structure ratio significantly negatively influence firms’ market value in both FEM (β = -.35, t = -2.54) and REM (β = -.12, t = -2.65) implying that a unit change in capital structure ratio leads to a decrease in Tobin’s Q of firms listed at the Nairobi Securities Exchange of .35 and .12, respectively, all things being fixed. Ownership structure is an insignificant positive predictor of market value in both FEM (β =.01, t = .14) and REM (β = .01, t = .18) respectively. This means that a unit change in ownership structure leads to an increase in Tobin’s Q of firms listed at the Nairobi Securities Exchange of .01, all things being fixed. Asset tangibility is a negative significant predictor of market value (β = -.13, t = -1.96) for FEM specification. In contrast, firm size is a positive significant predictor of market value in FEM (β = .04, t = 2.91). The Adj-R2 for FEM and REM show that the variables jointly explain between 42 % and 43 % of the variation in the Tobin’s Q respectively of firms listed on the Nairobi Securities Exchange. . Keywords: Random Effect Models, Fixed Effects Models, Panel, Econometric analysis, Kenya
Authors and Affiliations
Dr. Robert Kisavi Mule, Prof. Mohamed Suleiman Mukras, Onesmus Mutunga Nzioka, Ms Mwimali Halima Maloba
Keywords
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