Effect Of Firm Characteristics On Share Returns Of Companies Listed At The Nairobi Securities Exchange

Abstract

Firm characteristics play a significant part in shaping the profitability of any organization and are essential in predicting stock returns behaviour. However, firms thrive to survive in a wide range of environments characterized with unfavorable economic conditions in addition to the various firm characteristics. The NSE in Kenya offers an appropriate market for investors who intend to purchase and the investors who intent to sell of their securities hence creating liquid financial instruments. NSE listed companies are anticipated to be stable financially in order to gain investor confidence and contribute to economic growth. However, although most of the companies listed in the NSE have improved their performance, others have suffered a decline in assets and with some being delisted from the exchange. Share prices of several listed firms have recorded a significant decline over the years. This study aimed at determining how corporate characteristics impact on equity returns of companies quoted at NSE. The efficient market hypothesis, the market power hypothesis and the resource-based model were adopted as the main theories for the study. A descriptive design was employed and population consisted of the 64 entities quoted at NSE. Data for this study was secondary in nature and was gathered via a data collection sheet for a 5 years period ranging from 2014 to 2018. Descriptive statistical tools were adopted to summarize the data and the regression model was used to assess the link between the response and explanatory variables. The findings documented that firm size had a positive and significant link with share returns whilst revenue growth had a positive and significant relation with share returns respectively. The results also indicate that firm age had insignificant but a positive relation with share returns while profitability (ROA) had a significant and positive relation with share returns respectively. The study also found a positive and insignificant relationship between DPR and stock returns whereas the relation between market capitalization and share returns was positive and significant while board size had a negative and insignificant relationship with share price respectively. The study concluded that firm size, revenue growth, profitability and market capitalization had a significant effect on share returns of companies quoted at NSE. The study recommended that the management of companies listed at the NSE should invest more in fixed assets to growth their firms, develop effective policies to enhance sales and revenue growth and increase the profitability of their firms to enhance equity yields.