Investment Decisions and Financial Performance of Nonfinancial Firms Listed at the Nairobi Securities Exchange,Kenya
Maranga, Dennis Osoro
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The expectations of any stakeholder in a firm at the end of a quarter or a financial year is to earn dividends. However, this may not always be the case, since the firm may occasionally post losses. Previous endeavors to boost the financial performance of non-financial firms has been retarded by unsound Investment decisions reached upon by their management. However, other Studies that have been conducted previously portray that practicing prudent Investment decisions has reported an increase in their Financial Performance. Therefore, this research study evaluated the effect of Investment decisions on the Financial Performance of these firms. The specific objectives of this research study were: to evaluate the effect of Expansion decisions, Replacement decisions and Renewal decisions on Financial Performance of listed non-financial firms at the NSE; to establish the effect of firm size and financial leverage as a moderating and a mediating variables respectively on the relationship between Investment decisions and Financial Performance of these firms. The main theory underpinning this research study was the agency theory, supported by the Q theory of investments, accelerator theory of investments, financial constraint theory and the arbitrage pricing theory. This research study involved a census of 30 listed non-financial firms at the NSE as at December, 2018. This research adapted an explanatory non-experimental research design with the main source of data for the study being secondary panel data. A positivism research philosophy and explanatory research design was used and the data was extracted from the Nairobi Securities Exchange and Capital markets authority annual reports by use of document guide review, covering a 6-year period spanning the years 2013 to 2018. This research study analyzed data using descriptive statistics and regression analysis. Diagnostic tests conducted indicated the absence of multicollinearity. The variables were also found not to have a unit root with a normal distribution. The data indicated presence of homoscedasticity and autocorrelation. Model Specification Test was conducted to determine the suitability of either fixed or random effect model. Random effect model was found to be the suitable model for the study. The presence of autocorrelation necessitated the need to run a Feasible Generalized least square regression. It was concluded from the regression results that Expansion decisions had a negative and non-significant effect on return on assets ratio, market share price to book share price ratio and fixed assets turnover ratio. Replacement decisions had a negative and non-significant effect on the return on assets ratio and fixed assets turnover ratio models respectively; However, Replacement decisions had a negative and significant effect on the market share price to book share price ratio; Renewal decisions had a negative and significant effect on the return on assets model. However, Renewal decisions had a negative and non-significant effect on the market share price to book share price ratio and fixed assets turnover ratio, respectively of these firms. Firm size and Financial Leverage did not moderate and mediate respectively the relationship between Investment decisions and the nonfinancial firms’ financial performance. It is therefore recommended that, by evaluating the Expansion Decision of firms, the lenders can carry out a precautionary move against the possibilities of lending to firms whose return on new fixed assets forecast is not promising. By assessing the behavior of the market share price to book share price ratio and the fixed to asset turnover ratio, the investors can be able to make timely Replacement and Renewal decisions. Various researchers are called upon to research on Investment decisions and Financial Performance of non-listed non-financial firms, small and medium firms and financial firms.