THE LEVERAGE, CORPORATE GOVERNANCE AND INCOME SMOOTHING IN THE FIRMS LISTED IN THE NAIROBI STOCK EXCHANGE, KENYA

Abstract

This study sought to determine the effect of leverage and corporate governance on income smoothing of the firms listed in the Nairobi Stock Exchange, Kenya. The specific objective included; to determine the effect of leverage and corporate governance on income smoothing of the firms listed in the Nairobi stock Exchange, Kenya and to evaluate the effect of leverage on the relationship between corporate governance on income smoothing of the firms listed in the Nairobi stock Exchange, Kenya. The study adopted ex post facto research design. The target population was all the 64 firms listed in Nairobi Securities Exchange. The study found that leverage has a positive and significant effect on income smoothing. The study also found that ownership concentration and CEO duality had a negative and significant effect on income smoothing in the firms listed in NSE. Board size had a positive but insignificant effect on income smoothing in the firms listed in NSE. Generally, corporate governance had a positive and significant effect on income smoothing in the firms listed in NSE. The study also found that leverage does not moderate the relationship between board size and income smoothing in the firms listed in NSE. The study recommends that managers of the firms listed in NSE in Kenya should employ minimal debt level. This is because firms with high level of debt have high income smoothing. In addition, efforts need to be made to decrease financial risk in listed firms system by reducing the large number of non-performing loans held by local banks. This will minimize the income smoothing in the listed firms.