Description
This study examines the impact of managerial ability on financial performance, with a focus on the mediating role of investment diversification and the moderating effect of shareholder activism. It seeks to address gaps in existing research by analyzing the indirect and conditional relationships among these variables. The study adopts a positivist research philosophy and an explanatory research design, analyzing 40 firms listed on the Nairobi Securities Exchange (NSE) from 2011 to 2023, yielding 520 firm-year observations. Data were collected from secondary sources and analyzed using descriptive and inferential statistics. The Hausman test was conducted to determine the appropriate regression model, and the Phillips-Perron test was used for stationarity. The results indicate that managerial ability positively affects financial performance and is partially mediated by investment diversification. Shareholder activism moderates this relationship but negatively influences financial performance. Firm size and age also have a significant positive impact. These findings align with agency theory, highlighting the role of internal resources in achieving a competitive advantage. The study provides key insights for policymakers (NSE, CMA, CBK), managers, and investors, emphasizing the importance of managerial ability and investment diversification while addressing the potential adverse effects of shareholder activism.
Keywords: Financial performance, Investment Diversification, Managerial ability
