Directors' Remuneration Intensity, Board Independence and Firm Value in Kenya
Muganda Munir Manini *
Department of Economics, Finance and Accounting, Kibabii University, Bungoma, Kenya.
Umulkher Ali Abdillahi
Department of Economics, Masinde Muliro University of Science and Technology, Kakamega, Kenya.
*Author to whom correspondence should be addressed.
Abstract
Background: Directors’ remuneration and board independence are important aspects of corporate governance that may influence firm value. However, empirical evidence regarding their relationships with firm value remains inconclusive, particularly in emerging markets. Limited research has examined whether board independence moderates the relationship between directors’ remuneration intensity and market-based firm value among listed companies in Kenya.
Aims: To examine the relationship between directors' remuneration intensity and firm value, and to establish whether board independence moderates this relationship among companies listed in an emerging market.
Study Design: A quantitative, longitudinal panel study using secondary data.
Place and Duration of Study: Companies listed on the Nairobi Securities Exchange, Kenya, over the period 2010–2021.
Methodology: A balanced panel of 492 firm-year observations from 41 listed companies was analysed. Firm value was measured using Tobin's Q; directors' remuneration intensity was measured as directors' remuneration divided by sales; and board independence was measured as the percentage of independent directors. Two-way (firm and year) fixed-effects regressions with firm-clustered standard errors were estimated, complemented by wild cluster bootstrap inference, marginal-effects analysis and robustness tests covering outliers, lagged regressors, additional governance controls, sector-by-year effects and sub-samples.
Results: Directors' remuneration intensity was not significantly associated with Tobin's Q (β = −0.014, P = .15), and neither was board independence (β = −0.002, P = .81). The interaction between the two was negative and of borderline significance (β = −0.0024, P = .06; wild bootstrap P = .03), such that the association between remuneration intensity and firm value became negative only when independent directors exceeded approximately 82% of the board. This pattern was concentrated in 2020–2021 and did not survive sector-by-year effects, the exclusion of financial firms or lagged regressors.
Conclusion: Sales-scaled director remuneration does not appear to convey value-relevant information to investors in this market, and high formal board independence does not convert director pay into shareholder value. Remuneration committees should link director fees more closely to performance, and regulators should prioritise remuneration transparency over higher numerical independence thresholds.
Keywords: Board independence, directors' remuneration, emerging markets, firm value, Kenya, managerial power, Tobin's Q