Moderating Effect of Financial Gearing on the Relationship Between Corporate Governance, Ownership Structure and Financial Performance of MFIS in Kenya
DOI:
https://doi.org/10.70619/vol6iss7pp29-42-899Keywords:
Financial gearing, corporate governance, ownership structure, financial performanceAbstract
The purpose of the study was to evaluate the moderating effect of financial gearing on the relationship between corporate governance, ownership structure, and financial performance of MFIs in Kenya. This study adopted a correlational research design within a quantitative framework. This study adopted a correlational research design within a quantitative framework. The study employed a census approach. The target population comprised the 14 deposit-taking MFIs licensed by the Central Bank of Kenya during the study period. However, only 12 institutions had complete audited financial statements covering the entire period from 2015 to 2022. Therefore, all 12 eligible institutions were included in the analysis, while the remaining two were excluded because of incomplete data. Data were analysed using STATA statistical software. Financial gearing positively moderates the relationship between corporate governance and financial performance of MFIs in Kenya (BR × FG: β = 31.34900, p = 0.0280). The coefficient of the interaction term between foreign representation and financial gearing (FR × FG) was positive and statistically significant (β = 2.111630, p = 0.0212). This implies that financial gearing significantly moderates the relationship between ownership structure and financial performance of MFIs in Kenya. The interaction term between board remuneration and financial gearing (BR×FG) yielded a negative and statistically significant coefficient (β = -0.125696, p = 0.0011). This finding indicates that financial gearing significantly moderates the relationship between corporate governance and financial performance among MFIs in Kenya. The study concludes that financial gearing significantly moderates the relationship between corporate governance, ownership structure, and financial performance. This means that an MFI's different levels of debt will significantly affect how governance structures impact the firm’s profitability. Similarly, different levels of debt affect the impact of ownership structure on the firm's profitability.
References
Apalia, A. (2017). The role of microfinance institutions in the Kenyan economy: A case of Kisii town, Nyanza.
Central Bank of Kenya. (2018). Bank supervision annual report 2018. Central Bank of Kenya.
Central Bank of Kenya. (2022). Bank supervision annual report 2022. Central Bank of Kenya.
Central Bank of Kenya. (2024). Bank supervision annual report 2024. Central Bank of Kenya.
Donaldson, G. (1961). Corporate debt capacity: A study of corporate debt policy and the determination of corporate debt capacity. Harvard University, Graduate School of Business Administration.
Fama, E. F., & French, K. R. (1998). Taxes, financing decisions, and firm value. The Journal of Finance, 53(3), 819–843. https://doi.org/10.1111/0022-1082.00036
Fatima, S., Alshammari, T., & Alqahtani, A. (2023). Impact of profitability on firm value: Moderating role of capital structure in Saudi Arabian listed firms. Cogent Economics & Finance, 11(1), 2258743. https://doi.org/10.1080/23322039.2023.2258743
Khuhro, R. A., & Ahmed, F. (2024). Capital structure, information asymmetry, and financing behaviour of microfinance institutions: Evidence from Chinese microfinance institutions. Journal of Risk and Financial Management, 17(2), Article 62. https://doi.org/10.3390/jrfm17020062
Kiarie, J. M., Muturi, W. M., & Njeru, A. (2019). Moderating effect of gearing ratio on the relationship between loyalty programmes and financial performance of selected firms in the service industry in Kenya. International Academic Journal of Economics and Finance, 3(3), 89–109.
Kijkasiwat, P., Phuensane, P., & Wellalage, N. H. (2022). Corporate governance and firm performance: The mediating role of financial leverage. International Review of Financial Analysis, 82, 102190. https://doi.org/10.1016/j.irfa.2022.102190
Kitaka, A. (2001). Microfinance institutions and economic development in Kenya. Nairobi, Kenya.
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187–221. https://doi.org/10.1016/0304-405X(84)90023-0
Otieno, S., Nyagol, M., & Onditi, A. (2016). Determinants of financial performance of deposit-taking microfinance institutions in Kenya. International Journal of Economics, Commerce and Management, 4(11), 563–582.
Oyedele, O. O. (2025). Capital structure, corporate governance and financial performance of listed deposit money banks in Nigeria. Journal of Accounting and Financial Management, 11(1), 45–63.
Saeed, A., Belghitar, Y., & Clark, E. (2013). Do corporate governance mechanisms moderate the relationship between capital structure and firm performance? Evidence from Pakistani banks. International Journal of Business Governance and Ethics, 8(2), 103–125.
Tanui, J. K. (2021). Moderating effect of capital structure on the relationship between institutional ownership, corporate diversification and financial performance of firms listed at the Nairobi Securities Exchange (Doctoral dissertation). Moi University.
Wayongah, O. O., Namusonge, G. S., & Sakwa, M. (2019). Moderating effect of firm size on the relationship between financial leverage and financial performance of non-financial firms listed at the Nairobi Securities Exchange. International Journal of Research in Business and Social Science, 8(4), 182–192.
Zeb, A., Khan, S., Ullah, I., & Rehman, A. (2025). Corporate governance mechanisms, leverage and firm performance: Evidence from listed cement and chemical firms in Pakistan. Journal of Asian Finance, Economics and Business, 12(1), 115–129.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2026 Sila Florence Ndinda, Benjamin Ombok, Phillip Adoyo
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
