Relationship Between Fixed Capital Investment and Stock Returns of Firms Listed at the Nairobi Securities Exchange

Abstract

Firm investment is one of the factors that affect the corporate value since investment decisions are associated with the decisions about the allocation of funds, in terms of sources of financing as well as the use of funds for the short-term and long-term purposes. However, the decision to invest is subjective and a wrong investment decision can lead companies even to bankruptcy of the firm, which may negatively affect the firm’s stock returns. This study therefore sought to determine the relationship between fixed capital investment and stock returns of firms listed at the Nairobi Securities Exchange. The modern portfolio, the q theory of investments and the signaling theory were explored as the key theories of the study. The study adopted a descriptive research design and the population of this study was made up of 48 non-financial firms listed at the Nairobi Securities Exchange as at December 31st 2017. This study used secondary data which was collected using a data collection sheet for a period of five years from (2013- 2017). To analyze the collected data the study used the multiple linear regression models and the Karl Pearson correlation coefficient. The study also found a negative and insignificant relationship between fixed capital investment and stock returns while the relationship between dividend payout and stock returns was found to be insignificant and positive. The study also found that profitability had a significant and positive relationship with stock returns. Finally, the results revealed that size had a negative and insignificant relationship with stock returns whilst age had a positive and insignificant relationship with stock returns of listed non-financial firms in Kenya. The study concluded that fixed capital investment, dividend policy, age and size of the firm do not have a significant effect on stock returns but profitability significantly influences stock returns.