Perspectives of Innovations, Economics and Business

  Previous Article | Back to Volume | Next Article
  Abstract | References | Citation | Download | Preview | Statistics
Volume 15
Issue 2
Online publication date 2015-07-20
Title Determinants of the financial performance of firms listed at the Nairobi Securities Exchange
Author Aloys Ayako, Thomas Githui, George Kungu
This study analyzed the factors affecting the performance of 41 non-financial companies listed on the Nairobi Securities Exchange (NSE) using panel data over the period 2003 to 2013. A Hausman test results suggested the application of a random effects model for ROA and a fixed effects model for ROE. The empirical results of the estimation of both ROA and ROE show that corporate governance was statistically significant in determining the performance of firms and it had the expected sign (Positive). The leverage of the firm also had the expected negative sign and was statistically significant in explaining the performance of companies. Firm size and liquidity were however found to be statistically insignificant in determining the performance of these firms. Consistent with previous studies, the study concluded that board size, board independence and liquidity are key determinants of a firm’s financial performance. Consequently, the study recommends that a firm should ensure optimal board size, board independence (i.e increase the number of non-executive directors and sound liquidity management.The study recommends comparative studies to  be undertaken on  the factors influencing the financial performance of the financial and non-financial companies listed at the Nairobi securities exchange as well as those not listed. In addition, it recommends that further studies could be extended to analyze the factors affecting the performance of companies at cross-country level such as within the East African Community.  
Determinants of the Financial Performance of Firms Listed at the Nairobi Securities Exchange
Abdul G.K., 2012. "The relationship of capital structure decisions with firm performance: A study of the engineering sector of Pakistan", International Journal of Accounting and Financial Reporting, Vol.2(1), pp.2162-3082
Almajali A.Y., Alamro, S.A., and Al-Soub, Y.Z., 2012. "Factors affecting the financial performance of Jordanian insurance companies listed at Amman Stock Exchange," Journal of Management Research, Vol.4(2), pp.266-289,
Altman, E.I., 1968. "Financial ratios, discriminant analysis and the prediction of corporate bankruptcy", The journal of finance, Vol.23(4), pp.589-609,
Baumol W.J. Tobin J., 1989. "The optimal cash balance proposition balance: Maurice-Allais priority," Journal of Economic Literature, Vol.27(3), pp.1160-1162
Baumol W.J., 1952. "The transactions demand for cash: An inventory theoretic approach," Quarterly Journal of Economics, Vol.66(4), pp.545-556,
Berle A.A., and Means G., 1932. The modern corporation and private property, New York, Macmillan
Bhagat S., Bolton B., 2008. "Corporate governance and firm performance," Journal of Corporate Governance, Vol.14 (3), pp.257-273,
Brigham E.F. and Ehrhardt M.C., 2004. Financial management: Theory and practice, 11th Edition, South-Western College Publishers, New York
Caporale G.M., Howells P.G. and Soliman A.M., 2004. "Stock market development and economic growth: The causal linkages," Journal of Economic Development, Vol.29(1), pp.33-50
Chebii E.K., Kipchumba S.K. and Wasike E., 2011. Relationship between firms capital structure and dividend payout ratios: Companies listed at Nairobi stock exchange. Kabarak First International Conference 12th-14th Oct 2011
Chirinko R.S., and Singha A.R., 2000. "Testing static tradeoff against pecking order models of capital structure: A critical comment", Journal of Financial Economics, Vol.58(3), pp.417-425,
Daily C.M., Dalton D.R., 1994. "Bankruptcy and corporate governance: The impact of board composition and structure," Academy of Management Journal, Vol.37, pp.1603-1617,
Dalton D.R., Dalton C.M., 2011. "Integration of micro and macro studies in governance research: CEO duality, board composition and finance performance," Journal of Management, Vol.37, pp.404-411,
Dash M; Ravipati R., 2009. A liquidity-profit trade-off model for working capital, Retrieved from,http/
Demirguc-Kunt A., Levine R., 1996. "Stock markets, finance and economic growth," World Bank Economic Review, Vol.10(2), pp.223-239,
Garcia V.F., Liu L., 1999. "Macroeconomic determinants of stock market development," Journal of Applied Economics, Vol.II(1), pp.29-59
Greene W.H., 2008. Econometric analysis (6th ed.). Upper Saddle River, N.J.: Prentice Hall
Hansen G.S.,Wernerfelt B., 1989. "Determinants of firm performance: The relative importance of economic and organizational factors," Strategic Management Journal, Vol.10, pp.399-411,
Hawawini G., Subramanian V., and Verdin P., 2003. "Is performance driven by industry‐or firm‐specific factors? A new look at the evidence", Strategic management journal, Vol.24(1), pp.1-16,
Iswatia S., and Anshoria M., 2007. The influence of intellectual capital to financial performance at insurance companies in Jakarta Stock Exchange (JSE). Proceedings of the 13th Asia Pacific Management Conference. Melbourne
Javed B. and Akhtar S., 2012. "Interrelationships between capital structure and financial performance, firm size and growth: Comparison of industrial sector in KSE", European Journal of Business and Management, Vol.4(15), 148-157
Kerlinger, F.N., and Lee, H.B., 2000. Foundations of behavioral research (4th ed.). Fort Worth, TX: Harcourt
Kibet B., Kibet L., Tenai J. and Mutwol M., 2011. The determinants of leverage at the Nairobi Stock Exchange, Kenya. The Second Asian Business and Management Conference 2011 Osaka, Japan
Koros K.G., 2001. "An evaluation of financial performance in non banking financial institutions that converted into commercial banks in Kenya", Unpublished MBA Project, University of Nairobi
Liargovas P.G., and Skandalis K.S., 2008. "Motives and marketing strategies of Greek Companies exporting to South-East European markets", South-Eastern Europe Journal of Economics, Vol.2, pp.227-244
Levin R., 2005. "Finance and growth: Theory and evidence", In Handbook of Economic Growth, Aghion, P. and Dulauf S.N. (Eds.), pp.865-934
Maina L. and Kondongo O., 2013. Capital structure and financial performance in Kenya: Evidence from firms listed at the Nairobi Securities Exchange. Paper Presented at the Jomo Kenyatta University of Science and Technology Research Conference, Kenya
McKinnon, R.I., 1975. Money and capital in economic development, Washington, D.C.: The Brookings Institute
Miller, M., Orr, D., 1966. "A model of the demand for money by firms," Quarterly Journal of Economics, Vol.81, 413-435,
Ngugi R., Maana I., Amanja D., Collier P., Ndungu N., 2010. Capital market and economic growth in Kenya. In Kenya Policies for Prosperity, Oxford University Press Nosa and Ose, 2010. "Capital structure and corporate performance in Nigeria: An empirical investigation," Journal Of Management Sciences, Vol 1, Issue 1, pp.43-52
Ohlson J.A., 1980. "Financial ratios and the probabilistic prediction of bankruptcy", Journal of accounting research, Vol.18(1), pp.109-131,
Ogeto D.M., 1994. Financial performance of public enterprises and privately owned firms compared, Unpublished MBA project, University of Nairobi
Opler T.C., and Titman S., 1994. "Financial distress and corporate performance", Journal of Finance, Vol.49(3), pp.1015-1040,
Opler T., Pinkowitz L., Stulz R., William R., 1999. "The determinants and implications of corporate cash holdings", Journal of Financial Economics, Vol.52, pp.3-46,
Poi B., and Wiggins V., 2001. Testing for panel-level heteroskedasticity and autocorrelation. State Corp LP. Retrieved from /faqs/stat/panel.html
Republic of Kenya, 2003. Laws of Kenya: Capital Markets Authority Act, Cap. 485a, Nairobi, Government Press
Robson C., 2002. Real world research: A resource for social scientist and practioners, Research oxford Blackwell
Rumelt R.P., 1991. "How much does industry matter?", Strategic management journal, Vol.12(3), pp.167-185,
Saunders M., Lewis P. and Thornhill A., 2009.Research methods for business students (5th ed) Italy: Prentice Hall
Shaw E.S., 1973. Financial deepening in economic development, New York: Oxford University Press
Tobin J., 1956. "The interest elasticity of the transactions demand for money", Review of Economics and Statistics, Vol.38(3), pp.241-247,
Srinivasan V., Kim Y.H., 1986. "Determinants of cash flow management: State of art and research directions", OMEGA-International Journal of Management Sciences, Vol.14, pp.145-166,
Stone B.K., 1972. "The use of forecasts and smoothing in control-limit models for cash management," Financial Management, Spring, pp.72-84,
Yamane W., 2009. "Re-examining the financial development and economic growth nexus in Kenya, Economic Modelling", Vol.26(6), pp.1140-1146,
Yartey C.A., Adjasi C.K., 2007. "Stock market development in Sub-Saharan Africa: Critical issues and challenges", IMF Working Paper, WP/07/209, Washington D.C.

Keywords Financial performance, liquidity, leverage, Nairobi Security Exchange, return on assets, return on equity
Pages 84-94
Download Full PDF Download
  Previous Article | Back to Volume | Next Article
Search in articles
Journal Published articles
PIEB 611
Journal Hits
PIEB 1814024
Journal Downloads
PIEB 28794
Total users online -