Corporate Governance and Capital Structure: An Analysis of Board Independence and Long-Term Debt and Financial Performance Nexus
Main Article Content
Keywords
Corporate governance, long-term debt, financial performance, board independence, capital structure, NSE
Abstract
This study investigates the moderating effect of board independence on the relationship between long-term debt financing and the financial performance of listed firms in Kenya. An explanatory research design with a longitudinal approach was used, analyzing secondary panel data from the financial reports of 67 firms listed on the Nairobi Securities Exchange (NSE) from 2019 to 2023. The study was guided by the Trade-off theory, Pecking Order theory, and the Resource Dependency theory. Data analysis involved descriptive and inferential statistics, including multiple regression analysis. The study found that long-term debt had a positive and statistically significant effect on the financial performance of listed firms (β= 0.124, ρ<0.05). Findings also indicated that board independence negatively and significantly moderated the relationship between long-term debt and financial performance (β= -0.171, ρ<0.05). This implies that while long-term debt generally improves financial performance, a higher proportion of independent directors can diminish this positive effect, likely due to stricter oversight that limits a firm's ability to leverage debt. The study concludes that firms should strategically balance the use of long-term debt with board oversight to optimize financial outcomes. It is recommended that regulatory bodies develop guidelines on board composition and that managers evaluate board oversight levels to allow for financial flexibility while preventing excessive risk-taking.
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Ambrose Wambua , Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900-30100, Kesses, Eldoret, Kenya
Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900-30100, Kesses, Eldoret, Kenya
Joel Tenai , Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900-30100, Kesses, Eldoret, Kenya
Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900-30100, Kesses, Eldoret, Kenya
Daniel Kirui , Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900-30100, Kesses, Eldoret, Kenya
Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900-30100, Kesses, Eldoret, Kenya