Ownership Structure as a Moderator Between Firm Factors and Financial Performance: Evidence from Investment Firms Listed on the Nairobi Securities
DOI:
https://doi.org/10.70641/ajbds.v2i1.161Keywords:
Firm Ownership, Firm Performance, Firm Factors, Investment Firms, Nairobi Securities ExchangeAbstract
This study examined the moderating influence of ownership structure on the relationship between firm factors and the financial performance of investment firms trading at NSE. A positivist philosophy guided the study, emphasizing empirical measurement and statistical analysis. The research utilized a correlational research design, appropriate for analyzing the relationship between multiple firm factors and financial performance using panel data. The study targeted 53 investment firms at the NSE, employing a census survey approach. Secondary data was collected from reports of the NSE, CBK, and KNBS spanning 2014-2023. Panel data analysis was conducted to evaluate the impact of asset allocation, portfolio diversification, corporate governance, and risk management practices on financial performance. Diagnostic tests were performed, including multicollinearity, autocorrelation, heteroscedasticity, normality, and Hausman tests, to ensure the validity of the regression results. The study adopted a multiple regression model to test the moderating effect of firm ownership on the relationship between firm factors and performance. The R-squared value of 0.5279 suggested that ownership structure and firm-specific factors together explained 52.79% of the variation in financial performance. The F-statistic of 196.07 and p-value of 0.000 confirmed that ownership structure moderated the relationship between firm factors and financial performance. The coefficient for firm factors composite was 0.0735604, indicating that, on average, an increase in the composite measure of firm-specific factors (such as asset allocation, portfolio diversification, corporate governance, and risk management) by one unit led to a 0.0736-unit increase in financial performance. This positive coefficient suggested that better firm practices were directly associated with improved financial performance. On the other hand, the coefficient for ownership was -0.9790789, indicating a negative relationship between ownership structure and financial performance when considered independently. This negative coefficient suggested that ownership structure was associated with lower financial performance. Lastly, the coefficient for the interaction term (ownership * firm factors) was 0.0184003, suggesting that ownership structure significantly moderated the relationship between firm-specific factors and financial performance. Based on the study findings, the study recommended firms should therefore adopt advanced tools, provide training for asset management teams, and conduct regular reviews to optimize outcomes. Robust portfolio diversification strategies, which improve performance by spreading risk, should include a broader range of asset classes and regions.
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