Determinants of the financial performance of firms listed at the Nairobi Securities Exchange

• Authors: Aloys Ayako , Thomas Githui , George Kungu
• Languages of publication: EN

Abstracts

EN

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.

Keywords

EN

Financial performance; liquidity; leverage; Nairobi Security Exchange; return on assets; return on equity

Discipline

• ECONOMICS: ECONOMICS

• Publisher: Prague Development Center, Czech Republic
• Journal: Perspectives of Innovations, Economics and Business
• Year: 2015
• Volume: 15
• Issue: 2
• Pages: 84-94

Dates

published

2015-07-20

Contributors

author

Aloys Ayako

• Catholic University of Eastern Africa, Kenya

author

Thomas Githui

author

George Kungu

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Identifiers

DOI

http://dx.doi.org/10.15208/pieb.2015.08