Leverage, Liquidity and Firm Value of Non-Financial Firms Listed in the Nairobi Securities Exchange, Kenya

Anthony Muema Musyimi (), Dr. James M. Gatauwa () and Dr. Carolyne J. Kimutai ()

International Journal of Finance and Accounting, 2025, vol. 10, issue 1, 77 - 96

Abstract: Purpose: Firm value maximization and profit maximization are listed as the key objectives of every firm. Firm value maximization is highly concerned on constant viability of revenue but not only business gains. Company specific features play extremely important function in overall performance of a firm and firms value maximization. The average Tobin-Q values of non- financial business enterprises registered at NSE in the years between 2016 - 2022 reflected a declining trend where else the world Tobin-Q values of non- financial companies over the same period showed increasing trend. The previous period between 2008-2015 reflected a rising trend of company value of non- financial companies’ registered in NSE. This research therefore examined the influence of leverage, liquidity and company value of non-financial business enterprises registered in NSE, Kenya in an effort to give solution for this problem for the period spanning from 2017-2022. The study was anchored on agency cost of free cash flow theory, shareholder value theory and Modigliani and Miller Theory on Capital Structure. Methodology: The target population was all the 39 non –financial companies registered in the NSE, Kenya. All the 39 non-financial business enterprises registered at the NSE were used in the investigation. The research used panel data coming out of secondary sources found in the yearly records and financial accounts of registered non-financial firms. The figures were gathered out of NSE listed non-financial firms annual reports for the interval of 2016-2022. Panel regressions analysis and Pearson’s product moment correlation analysis were used for inferential analysis while means and standard deviations were used for purposes of descriptive analysis. Findings: Panel regression results indicated that both leverage (p=0.003, <0.05) and liquidity (p=0.002, <0.05) had a statistically significant positive effect on firm value. The study concludes that both leverage and liquidity have very strong positive relationship with firm value. The research established that leverage amplify both the potential returns and risks for a company. High liquidity levels led to increased trading activity and higher demand for a company’s shares. Unique Contribution to Theory, Practice and Policy: The research advocated that the companies ought to expand their debt levels so as to potentially raise their overall value and improve their financial performance. The firms should increase investor awareness and participation in the market so as to increase liquidity levels and hence firm value.

Keywords: Leverage; Liquidity; Firm Value; on-Financial Firms; Tobin-Q (search for similar items in EconPapers)
Date: 2025
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