Abstract:
There is growing recognition of the central role corporate governance plays in
providing specialized services that align firms towards accountable and transparent financial
practices. What is not clear, however, is the conditional effect of corporate governance on the
causal link involving internal financing and financial performance. Therefore, this study exploits
the principles underlying the Agency and Pecking Order Theories to probe how corporate
governance conditions the effect of retained earnings, a popular internal financing source, on the
financial performance of real-sector non-financial firms listed at the Nairobi Securities Exchange
(NSE). The study employs a causal-explanatory design that targets 51 real-sector non-financial
firms listed at the NSE. A sampling frame defined for the period 2016 to 2022 inclusive is used to
identify 42 firms with complete and suitable financial records that constituted the secondary data.
