The Influence of Corporate Governance Practices on Financial Distress of Firms Listed at the Nairobi Securities Exchange: Moderating Influence of Financial Leverage

Abstract

Corporations across the world continue to experience financial distress, which has led corporate stakeholders to question the existing corporate governance mechanisms. Financial distress is not a good phenomenon and generally results in loss of wealth. Based on the agency theory, the resource dependence theory and the stewardship theory, the study sought to investigate the moderating influence of financial leverage on the relationship between corporate governance practices and financial distress. The study used secondary data derived from the audited financial statements and annual reports of companies listed at the Nairobi Securities Exchange for a ten year period from 2008 to 2017. Panel regression analysis techniques and descriptive statistics were used to analyze data. The study was undertaken using an ex-post facto explanatory research design. The results of the study indicate that financial leverage has a significant moderating influence on the relationship between corporate governance practices and financial distress. Based on these findings, the study recommends that corporate managers should aim at achieving optimal debt levels that balance beneficial and adverse effects.