CORPORATE GOVERNANCE AND FINANCING CHOICES OF FIRMS: A PANEL DATA ANALYSIS

Abstract

Abstract We examine how corporate governance indicators such as board size, board composition and CEO duality impact on financing decisions of firms. Panel data covering the five year period 1999‐2003 from forty‐seven (47) listed firms on the Nairobi Stock Exchange (NSE) was used. Analysis was done within the Random‐effects GLS regression framework. Findings of the study indicate that firms with larger board sizes employ more debt irrespective of the maturity period and also the independence of a board negatively and significantly correlates with short‐term debts. Again, when a CEO doubles as board chairperson, less debt is employed. Thus, the study reaffirms the notion that the governance structure of a firm affects its financing choices.