Effect of Chief Executive Officer’s Characteristics on Capital Structure of Publicly Listed Firms in Kenya

Abstract

Based on a panel of publicly listed firms in Kenya over the period of 2008 to 2014, we examined if Chief Executive Officer’s Characteristics affects capital structure. CEO tenure, CEO gender and CEO age and CEO education were used as independent variables while the capital structure was used as the dependent variable of the study. The study used upper echelon theory, trade-off theory and agency theory. Majorly, descriptive statistics, Pearson correlation analysis and panel regressions were performed. Panel regression analysis was used to determine the effect of CEO characteristics on capital structure. CEO tenure had a negative and significant effect on capital structure, CEO age had a positive and significant effect on the capital structure, CEO gender and CEO education indicated a negative and significant effect on capital structure respectively. The study indicates that there is an association between CEO characteristics and capital structure of listed firms in Kenya. It is therefore instrumental for firms to appoint their CEOs based on the duration they have served the company, CEOs to sit in their position for a longer period of time and those who have the requisite knowledge and experience hence they can be tasked with making important decisions pertaining firms' financing.

Keywords: capital structure, CEO characteristics, Upper Echelon Theory, Trade-Off Theory, panel data and Agency Theory

DOI: 10.7176/RJFA/11-18-07

Publication date:September 30^th 2020