Effect of board of directors diversity on stock liquidity of listed firms at the Nairobi securities exchange, Kenya

Abstract

Stock liquidity is an important phenomenon since stock price and trading volume influences how the firm is seen by its partners. Nonetheless, the quantities of organizations that experience the ill effects of money related pain have expanded throughout the years. Despite emphasis by regulators that listed firms must practice good corporate governance firms still encounter stock liquidity problems, as business success depend heavily on the ability of financial managers and the stakeholders in the execution of business operations. Thus, this research examined the effect of board diversity on stock liquidity of firms listed at the Nairobi Securities Exchange. The study specific objectives were to determine the effect of board nationality diversity on stock liquidity of listed firms, establish the effect of board age diversity on stock liquidity of listed firms, to establish the effect of board gender diversity on stock liquidity of listed firms and to establish the effect of board education diversity on stock liquidity of listed firms. The study was informed by Agency Theory and Upper Echelons Theory. This study used a combination of explanatory and longitudinal research design. The target population comprised 62 firms listed in Nairobi stock exchange Nairobi Security Exchange. A census approach was used to select the 40 firms for the 10 years listed in NSE Kenya giving 400 firm-yearly data formed the sample size for the period 2008-2018. The data collection instrument used was content/document analysis guide. Both descriptive and inferential statistics were used to analyze data. Inferential statistics are closely tied to the logic of hypothesis testing discussed. Panel data was analyzed using random effects model (REM). Findings showed that board gender diversity (β 3 = 0.136, p-value = 0.000 < α = 0.000) and board education diversity (β 4 = 0.102, p-value = 0.000<α = 0.000) have a positive and significant effect on firm stock liquidity. However, board nationality (β 1 = 0.064, p- value = 0.116 > α = 0.05) and board age diversity (β 2 = 0.0304, p-value = 0.136 > α =0.5) have no significant effect on stock liquidity. The results showed that board nationality diversity and board age diversity explained 30.65% variation in stock liquidity that (R-sq=0.3065).The study concluded firms with higher board gender diversity and board education diversity increase stock liquidity. Therefore, in order to increase stock liquidity, it is important to include women and men in the board but in an equal proportion, it is also extremely necessary for companies to select directors of different educational levels in equal proportions. Additionally, the inclusion of board members with varying levels of education and experience enhance stock liquidity.