Debt capital, firm performance and change of CEO in firms listed on the Nairobi securities exchange

Abstract

It is generally accepted that boards of directors play a fundamental role in corporate governance and the structure of the board plays a significant role in the functioning of a company (Jensen, 1993). The main objective of this study was to investigate the relationship between debt capital, firm performance, and change of CEO in firms listed on the NSE. The results of the study revealed that firms in which an individual shareholder has influence or controlling interest are reluctant to replace their CEO even when performance is below average. The results also revealed that the replacement of the CEO is not performance driven, but is debt capital driven. Specifically, the results suggest that medium leverage ratio is associated with change in CEOs on firms listed on the NSE.