Capital Structure, Chief Executive Officer Duality and Firm Performance. Evidence From Firms Listed in Securities Exchange, Kenya

Abstract

Purpose: The primary aim of the study was to determine the moderating effect of Chief Executive Officer (CEO) duality on the relationship between capital structure and firm performance among firms listed on the Nairobi Securities Exchange (NSE). The investigation sought to clarify whether the dual role of the CEO as board chair influences the effectiveness of capital structure decisions on firm outcomes.

Methodology: The study employed a longitudinal research design, focusing on all 45 firms consistently listed on the NSE between 2011 and 2016, irrespective of industry classification. Secondary data were collected using a documentary review guide sourced from NSE Handbooks and published financial statements. Data analysis was conducted using fixed and random effects generalized least squares (GLS) regression models to estimate the effects of capital structure and the interaction with CEO duality on firm performance.

Findings: Regression analysis revealed that capital structure has a statistically significant positive effect on firm performance (β₁ = 0.0311, p < 0.05), suggesting that a higher debt ratio improves firm outcomes. However, CEO duality demonstrated a significant negative moderating effect (β₂ = -0.029, ∆R² = 0.054, p < 0.05), indicating that when the CEO also serves as the board chair, the beneficial impact of capital structure on firm performance is diminished.

Conclusion: The study concludes that while capital structure decisions are central to firm performance enhancement through strategic financing, governance mechanisms, particularly CEO duality, can either facilitate or constrain these effects. The presence of CEO duality appears to weaken the positive influence of debt utilization on firm performance due to potential conflicts of interest and reduced board independence.

Value: This study provides vital insights for corporate governance and financial policy in emerging capital markets. It recommends that listed firms adopt clear governance frameworks that preserve accountability and minimize entrenchment risks associated with CEO duality. Moreover, regulatory bodies may consider policies limiting dual roles or instituting checks and balances to safeguard shareholder value. Expanding the scope of similar studies to include a broader sample of firms and timeframes can further inform governance reforms and sustainable growth strategies in developing economies.