Investment Decisions and Financial Performance of Nonfinancial Firms Listed at the Nairobi Securities Exchange,Kenya
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Date
2022
Authors
Maranga, Dennis Osoro
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
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.
Description
A Research Thesis Submitted to the School of Business in Partial Fulfillment of the Requirements for the Award of the Degree of Doctor of Philosophy in Business Administration (Finance Option) of Kenyatta University
Keywords
Investment Decisions, Financial Performance, Nonfinancial Firms, Nairobi Securities Exchange, Kenya