INTERNATIONAL JOURNAL OF RESEARCH IN BUSINESS AND SOCIAL SCIENCE 8(5)(2019) 212-219 * Corresponding author.Tel: +254722518801 ORCID ID: 0000-0001-9529-3333 Peer review under responsibility of Bussecon International Academy. © 2019 Bussecon International. Hosting by SSBFNET- Center for Strategic Studies in Business & Finance. All rights reserved. https://doi.org/10.20525/ijrbs.v8i5.313 Shareholder loyalty and firm value creating outcomes in Kenya Amos M. Kimunya a* , Amos Njuguna b , Francis Wambalaba c a,b,c Chandaria School of Business, United States International Uinversity Africa, Nairobi, Kenya A R T I C L E I N F O Article history: Received 15 July 19 Received in revs. form 05 August 19 Accepted 10 August 19 Keywords: Shareholder Loyalty Shareholder Engagement Firm Value Creation Institutional Investor JEL Classification: G32 M40 N27 A B S T R A C T The study aimed at examining the effect of shareholder loyalty on firm value-creating outcomes in Kenya. The study used a sample of 117 institutional shareholders in listed firms in Kenya. Data was collected through questionnaires and analyzed using descriptive statistics such as mean, mode, and median and inferential statistics including factor analysis, regression, and analysis of variance (ANOVA). The study concluded that shareholder loyalty has no significant effect on firm value-creating outcomes. The study contributes to the literature on shareholder engagement, particulary on shareholder loyalty from a Kenyan angle. Shareholders are advised to consider their initial cost of investment, costs, and penalties on exit and impact on their business interests with the firm as they decide on their voice or exit actions. © 2019 Bussecon International Academy. Hosting by SSBFNET. All rights reserved. Peer review under responsibility of Bussecon International Academy & SSBFNET. Introduction Shareholders, being rational profit maximisers, are keen to enhance value from their investments and are now more than before engaging with their management (Becht, Franks, Grant, & Wagner, 2017) to influence decision making towards value creating outcomes (Denes, Karpoff, & McWilliams, 2017). This shareholder engagement or activism includes use of shareholder loyalty, alongside ‘voice’ and ‘exit’ strategies to influence management towards actions that will create value, or avoid further deterioration. Accordingly, a shareholder faced with discontent can choose between voicing concerns, exiting, or staying loyal, depending on the barriers and costs associated with each (Chung & Talaulicar, 2010; Hirschman, 1970). Shareholder loyalty is described by Hirschman (1970) as a special attachment to a product or association that obscures one from taking the rational decision to exit, in the hope that recuperation will occur. This study applies the definition to shareholders and their relationship with their firms. The main trigger for shareholder engagement has been corporate losses and associated mistrust of professional managers from recent global financial crises, leading to increased agitation by investors—especially passive institutional investors with limited exit options such as pension funds—to be included in the management and oversight of firms (Clark & Hebb, 2004; Gillan & Starks, 2007; Ingley, Mueller, & Cocks, 2011; Marler & Faugère, 2010). The shift towards shareholder activism has been increasingly reported in the U.K. in the 1970s, mainly facilitated by the legal environment (Black & Coffee Jr., 1994; Crespi & Renneboog, 2010) and in the U.S. from the mid-1980s (Gillan & Starks, 2007). In Africa there is also growing incidences of shareholder activism as noted in Nigeria arising from corporate challenges (Amao & Amaeshi, 2008), while corporate governance and shareholder activism has been shown to be intertwined with the political system (Adegbite, Amaeshi, & Amao, 2012). Investor activism has also developed in South Africa, mainly driven by environment, social and governance issues (Yamahaki & Frynas, 2016) and the growing monitoring needs of institutional investors (Viviers & Smit, 2015). Research in Business & Social Science IJRBS VOL 8 NO 5 ISSN: 2147-4478 Available online at www.ssbfnet.com Journal homepage: https://www.ssbfnet.com/ojs/index.php/ijrbs