The Mediating effect of Firm Growth on the relationship between Financial Risk and Financial Distressof Firms listed atthe NairobiSecurities Exchange, Kenya
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Date
2022
Authors
Omagwa, Job,
Muathe, Stephen
Walela, Elias
Journal Title
Journal ISSN
Volume Title
Publisher
Research and Postgraduate Support Directorate
Abstract
In Kenya, at least 6 listed firms became insolvent and got into liquidation over a period of 10
years (2009 2018) leading to loss of income, unemployment and other negative outcomes.
Firm growth has been observed to mediate the relationship between various variables and
financial distress of firms though there is little empirical evidence in developing economies
particularly for firms that are listed at the Nairobi Securities Exchange in Kenya. The general
objective was to investigate the mediating effect of firm growth on the relationship between
financial risk and financial distress of firms listed at the Nairobi Securities Exchange, Kenya
for the period 2009 2018. This study was based on Wreckers theory of financial di stress,
Trade off theory, Distress theory, Early Bankruptcy theory and the Altman’s Z Score Model for
financial distress. The study adopted positivism research philosophy and explanatory non
experimental and descriptive research designs. The targeted popul ation entailed all 66 firms
listed at the Nairobi Securities Exchange, Kenya as at 2018 . Time Series Cross Sectional
(Panel) secondary data was analysed . The following diagnostic tests were carried out before
delving into data analysis: Tests for Multicoll inearity, Outliers, Heteroscedasticity,
Autocorrelation, Linearity, Goodness of Fit, Stationarity and Model Specification. Data
analysis was done using descriptive statistics and inferential statistics using Binary Logistic
regression model where SPSS vers ion 22 was applied. The findings indicate that Firm growth
partially mediates the relationship between financial risk and financial distress of firms listed
at the NSE, Kenya at 5% significance levels. The study recommends that financial analysts
should c ome up with recommended firm growth levels that will be optimal in ensuring least
financial risk and avoid cases of financial distress of firms. Researchers and institutions
should invest in furthering research in areas of factors that mediate the relation ship between
financial risk and financial distress .
Description
research article
Keywords
Mediating effect, Firm Growth, Financial Risk, Financial Distress, Bankruptcy
Citation
Walela, E., Omagwa, J., & Muathe, S. (2022). The Mediating effect of Firm Growth on the relationship between Financial Risk and Financial Distress of Firms listed at the Nairobi Securities Exchange, Kenya. African Multidisciplinary Journal of Research, 319-343.