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

Author

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  • Aloys Ayako
  • Thomas Githui
  • George Kungu

Abstract

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.

Suggested Citation

  • Aloys Ayako & Thomas Githui & George Kungu, 2015. "Determinants of the financial performance of firms listed at the Nairobi Securities Exchange," Perspectives of Innovation in Economics and Business (PIEB), Prague Development Center, vol. 15(2), pages 84-94, July.
    • Handle: RePEc:pdc:jrpieb:v:15:y:2015:i:2:p:84-94
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    Citations

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    Cited by:

    1. Kaodui Li & Mohammed Musah & Yusheng Kong & Isaac Adjei Mensah & Stephen Kwadwo Antwi & Jonas Bawuah & Mary Donkor & Cephas Paa Kwasi Coffie & Agyemang Andrew Osei, 2020. "Liquidity and Firms’ Financial Performance Nexus: Panel Evidence From Non-Financial Firms Listed on the Ghana Stock Exchange," SAGE Open, , vol. 10(3), pages 21582440209, August.
    2. Mansoor Alam Khan & Riaz Ahmad & Dr. Muhammad Akram & Hafiz Muhammad Ishaq, 2021. "The Effect Of Macroeconomic Indicators On Stock Market: A Study On Asian Economies," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(1), pages 114-127, March.
    3. David Onguka & Cyrus Iraya & Winnie Nyamute, 2021. "Impact of Corporate Governance on Corporate Value for Companies Listed at the Nairobi Securities Exchange," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 12(12), pages 1-70, December.
    4. Mihaela Brîndușa TUDOSE & Silvia AVASILCĂI & Radu GOLBAN, 2019. "Assessing Financial Performance Of Companies Manufacturing Industrial Goods. Evidence On Performance Dynamics In The Period Before And After The Crisis," EURINT, Centre for European Studies, Alexandru Ioan Cuza University, vol. 6, pages 335-354.

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