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THE RELATIONSHIP BETWEEN CORPORATE GOVERNANCE AND CAPITAL STRUCTURE FOR COMPANIES LISTED IN THE NAIROBI STOCK EXCHANGE

This paper examines the relationship between capital structure and corporate
governance for companies listed in the Nairobi Stock Exchange. The paper
specifically assesses how the adoption of corporate governance structures influences
financing decisions of the firms. The results of the Pearson product moment
correlation of 0.769 indicate a strong positive correlation between corporate
governance and capital structure. The r square of 0.591 indicates that corporate
governance influenced up to 59.1% of the variance in capital structure.
The positive relationship with firm size may be because large firms have higher debt
capacity. Large firms also tend to provide more information to lenders than small
firms. Positive and significant relationship is seen between capital structure and
growth. This is in line with the pecking order consideration where the relationship
between growth opportunities and leverage is predicted to be positive.
The results indicate negative relationships in the case of board composition,
profitability and managerial. The negative relationship with board composition could
suggest that boards that have too many outsiders lose the expertise associated with
officers serving on the board. The negative relationship with profitability is consistent
with the pecking order hypothesis. Managers have pecking order in which retained
earnings represent the first choice, followed by debt financing, then equity. Higher
profits provide more internal financing. There is a very weak negative correlation
between capital structure and managerial ownership.
It is clear, from the study, that corporate governance structures influence the financing
of the firms in the Nairobi Stock Exchang

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