Firm Specific Factors And Financial Performance Of Commercial And Services Firms Listed At The Nairobi Securities Exchange

Abstract

The major interest of this study was to establish the relationship between specific factors and financial performance of commercial and services firms listed at the Nairobi Securities Exchange. The study was necessitated by the poor performance of the industry as has been reviewed and found out that most of the firms in this industry declared profit warnings during the period understudy. The specific firm factors fundamentally explain the status of the firm and hence the study considered some of the fundamental factors in a firm to study the industry. The objectives of the study were meant to determine the combined effect of Liquidity, Leverage, Tangibility and Firm Size on the financial performance of commercial and services firms listed at the Nairobi Securities Exchange. The study was anchored on the following theories namely Trade off theory, liquidity preference theory and Resource Based View theory. The study period was between 2012-2021 and a covered ten-year period. The study employed use of the secondary data as derived. The descriptive research design was adopted for the study. Panel data technique was adopted to test for descriptive, diagnostic tests and running regression analysis. Analyzed data was presented and displayed using tables, figures, graphs `and other pictorials. The diagnostic test revealed there was no multi-collinearity between the variables, some variables were nonstationary and were treated using trend fitting and first differential using Im Pesaran Shin Unit root test. Hausman test revealed the Fixed effect model was preferred over the Random effects method. Heteroscedasticity was tested using the Modified Wald test and the output revealed the data was not homoscedastic. Normality revealed the data was skewed to the right. Model was fitted using the general least square which was preferred since it accommodates and accounts for heteroscedasticity and auto correlation Additionally, some of the variables were transformed from their nominal values to natural log values. The hypotheses were tested using the fitted model and it was revealed some variables were conclusive and agreed with reviewed literature while others were conflicting and ambiguous desiring further studies on these variables. Lastly the study recommended the managers of the firms to put keen efforts in management of resources especially leverage, liquidity, and Tangibility. Leverage and liquidity had inconclusive effect on the ROA.