Effect Of Financial Decisions On Firm Value Of Non- Financial Firms Listed At The Nairobi Securities Exchange

Abstract

Financial Managers are tasked with developing and maintaining healthy and prudent financial decisions that suite all the stakeholders in a firm. Research shows that there is extensive failure on the part of management to achieve this pioneering goal as more and more companies continue to fall under the hammer of receivership or closure. It is believed that the financial decisions made by these managers reflect a greater percentage as the cause for corporate failure. The fact that the NSE has had to delist six firms and put into suspension four others within the last decade due to financial duress is proof enough of this. This backdrop exudes the basis of the study as it sought to establish the effect of financial decisions on firm value of non-financial firms listed at the Nairobi Securities Exchange (NSE). The specific objectives of the study are: to determine the effect of investment decisions on firm value of non-financial entities quoted at the NSE, to establish the effect of working capital decisions on firm value of the listed non-financial firms at NSE, to determine the effect of dividend decisions on firm value of non-financial firms listed at NSE and to examine the effect of financial decisions on firm value of non-financial firms listed at NSE. The research adopted descriptive research approach where a sample of 36 was selected from a population of 45 listed non-financial firms. Secondary data was employed to generate panel data from 2010-2019 which were analyzed using STATA version 13 software. Coefficient of results indicated that investment decisions had a negative and insignificant relationship with firm value measured using Tobin Q. However, investment decisions had a negative and significant relationship with firm value measured using market value added. Leverage decisions had a positive and significant relationship with firm value measured using Tobin Q. However, coefficient of results indicated that financing decisions had a positive and insignificant relationship with firm value measured using market value added. Dividend decisions had a positive and insignificant relationship with firm value measured using Tobin Q. However, dividend decisions had a negative and insignificant relationship with firm value measured using market value added. Working capital management decisions had a negative and insignificant relationship with firm value measured using Tobin Q. Working capital management decisions had a negative and insignificant relationship with firm value measured using market value added. Firm performance significantly mediates the effect of financial decisions on firm value of Non-financial firms listed at Nairobi Securities Exchange as measured using Tobin Q as a measure of firm value. However, firm performance does not mediate the effect of firm performance on the relationship between financial decisions and firm value of non-financial firms listed at the Nairobi Securities Exchange measured using market value added. Based on the findings, the study concluded that investment decisions influences market value added of Non-financial firms listed at NSE. It was also concluded that leverage decisions positively influences Tobin Q of the non-financial firms listed at the NSE. The study concluded that firm performance significantly mediates the effect of financial decisions on Tobin Q of Non-financial firms listed at NSE. The study recommends for the implementation of well thought investment decisions based on customer desires, market requirement, expert opinion and business environment. The study recommends that, the management of Non-financial firms listed at the Nairobi Securities Exchange to balance between financing a firm using short term debt and long-term debt. The study recommends for the creation of prudent financial decisions including investment, leverage, working capital and dividend decisions that will stimulate firm performance.