INFLUENCE OF ETHNIC DIVERSITY OF THE BOARD OF DIRECTORS ON FIRM’S CAPITAL STRUCTURE AMONG LISTED FIRMS IN NAIROBI SECURITIES EXCHANGE, KENYA

Kennedy Ntabo Otiso, Nahashon Koech

Abstract


Capital structure decisions are important because they influence the performance of firms. Researchers posit that the new diverse boards are critical in exercising strategic control, tougher monitoring and financial decision making. The specific objective of the study is to examine the effect of the ethnic diversity of the board of directors on a firm’s capital structure. The study adopted a longitudinal design. The study utilized a census technique for 34 firms that are listed on the Nairobi Securities Exchange (NSE) consistently for an 8-year period, 2004–2012, hence giving 272 years of observations. This study utilized secondary data. A documentary guide was used to collect data. Data was analyzed using both descriptive statistical methods, which included mean, standard deviation and inferential statistics to test the linear relationship between variables and multiple regression to test the hypothesis. The study found that ethnic diversity (β3= -0.188, ρ<0.05) of board directors negatively affects capital structure. The study concluded that board diversity was an important determinant of capital structure. Therefore, there was a need to diversify the board of directors in terms of ethnicity and nationality so as to effectively monitor management from adopting excessive leverage. In order to add valuable and diverse expertise that domestic members do not possess, there was a need to enhance national diversity.

 

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capital structure, board diversity, ethnic diversity, corporate governance, securities exchange

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References


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DOI: http://dx.doi.org/10.46827/ejefr.v9i2.1978

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