Effect of Financial Expertise of the Directors on Capital Structure of Firms Listed in the Nairobi Securities Exchange
Journal Title: International Journal of Finance Accounting and Economics - Year 2018, Vol 1, Issue 3
Abstract
Capital structure is the way a firm raises capital to support its operations and future growth by using composition of debt and equity. Therefore, capital Structure is the proportion or mix of securities used to finance a firm consisting of Debt (borrowed) capital and equity (ownership) capital. The choice of capital structure is critical for the firm’s financial decision makers since it affects earnings and leads to change in market value of the firm and share value. The successful selection and use of capital is one of the key elements of the firms’ financial strategy. The current study thus sought to establish the effect of financial expertise of board of directors on capital structure of firms listed in the Nairobi Securities Exchange. The study was guided Agency theory. Explanatory research design was used to target 5 year data of 68 firms listed in the Nairobi Securities Exchange from which 340 observations were derived. Secondary data was collected and analyzed using descriptive and inferential statistics which includes frequencies, percentages and means while inferential statistics was correlation and multiple regressions. Analyzed data were presented in form of tables. The study results revealed that financial expertise of board of directors has a positive and significant effect on capital structure of firms (β= 0.428, p<0.05). The study findings revealed that working experience of board of directors helps to gain skills and capabilities that can help them to improve the performance of a firm.Firms with more financial expertise based on education level among independent directors perform better during capital crisis. The study recommended that diversity of experience should be given equal weight to other considerations when composing a successful board of directors in firms. The policy makers and stakeholders should come up with policies that ensure appointment of directors with different ethnic and gender backgrounds as well as bases of expertise to their boards
Authors and Affiliations
Emmah Nelima Masakari, Mwengei K. B. Ombaba
Keywords
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