Financial Risk, Firm Size and Financial Distress, Turbulent Times for Firms Listed at the Nairobi Securities Exchange, Kenya
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Date
2022
Authors
Walela, Elias
Omagwa, Job
Muathe, Stephen
Journal Title
Journal ISSN
Volume Title
Publisher
AIJR
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. Hence, the
financialstability ofthe existing listed firmsshould be examined closely since the firms are expected to be
stable at any point in time. Firm Size has been observed to moderate the relationship between various
variables and financial distress offirmsthough there is little empirical evidence in developing economies
particularly forfirmsthat are listed attheNairobi SecuritiesExchange in Kenya.Hence, an empirical issue
that remains is to determine what moderating effect firm size has on the relationship between financial
risk andfinancial distressofthe listedfirms.The general objectivewasto investigate the moderating effect
of firm size on the relationship between financial risk and financial distress of firmslisted attheNairobi
Securities Exchange, Kenya for the period 2009-2018. This study was based on Wreckers theory of
financial distress, 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 and
descriptive research designs. The targeted population entailed all 66 firms listed at the Nairobi Securities
Exchange, Kenya as at 2018. Time Series Cross-Sectional secondary data was analyzed. The following
diagnostic tests were carried out before delving into data analysis: Tests for Multicollinearity, 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.ThefindingsindicatethatFirmsize indeed moderates the relationship between financial risk and
financial distress of firms listed at the NSE, Kenya at5%significance levels.Optimalfirmsizesshouldbe
setupforlistedfirmstomanage financial distress.
Description
Article
Keywords
Financial Risk, Firm Size, Financial Distress
Citation
Walela, E., Omagwa, J., & Muathe, S. (2022). Financial Risk, Firm Size and Financial Distress: Turbulent Times for Firms Listed at the Nairobi Securities Exchange, Kenya. Advanced Journal of Social Science, 10(1), 88–102. https://doi.org/10.21467/ajss.10.1.88-102