Ownership Structure and FR Integrity: Evidence from a Developing Country

Abstract

This study examines the relationship between ownership structure and financial reporting (FR) integrity among non-financial firms listed on the Nairobi Securities Exchange. Specifically, it considers managerial, institutional, and foreign ownership. The study adopts a quantitative design using 42 firms observed from 2019 to 2024, yielding 252 firm-year observations. FR integrity is assessed using the Beneish M-Score, and the hypotheses are tested with a probit regression model. The descriptive results indicate that approximately 30.56% of the sampled firm-years are classified as potential financial statement manipulators based on the Beneish threshold. The regression results show that managerial ownership and institutional ownership have negative and statistically significant associations with the M-Score, indicating higher FR integrity as these ownership proportions increase. In contrast, foreign ownership has a positive and statistically significant association with the M-Score, indicating lower FR integrity. Firm age is positively associated with the M-Score, whereas firm size is negatively associated with it. Overall, the findings indicate that ownership structure is associated with differences in FR integrity among the sampled firms. The results have practical implications for corporate governance and ownership arrangements in developing capital markets. The study is limited by its reliance on the Beneish M-Score as the measure of FR integrity; future research may consider alternative measures and additional ownership dimensions.