Effect of Financial Risk on Performance of Non-financial Firms Listed at Nairobi Securities Exchange

Abstract

The study intended to establish how liquidity, leverage and equity price risks affect financial performance of non-financial firms. It used descriptive cross-sectional approach and longitudinal design. The population of the study included all listed firms at the Nairobi Securities Exchange as at 31st December 2019. Secondary data was employed sourced from Nairobi securities exchange database during 2015 to 2019. Statistical package for social scientists was used to produce inferential and descriptive statistics. It was established that R = 0.770 implying a positive association between financial risk and performance. Adjusted R2 of 0.550 meant that 55% of variations in financial performance was caused by variations in liquidity risk, leverage risk, firm size and equity price risk. The analysis of variance found out that financial risks and financial performance are significantly related with p<0.05. The implication was that equity price risk, firm size, leverage risk and liquidity risk reliably predict financial performance. Ensuing from the research objectives, the study concluded that financial risk affects financial performance of non-financial firms listed in Kenya. It was also concluded that financial risk and performance are significantly related. Further, it was concluded that the extent to which financial risks affected financial performance was moderate implying that there was a strong possibility of existence of other certain issues affecting financial performance other than the financial risks considered in this study. It recommended that managements should constantly work on effective management of financial risks to maximize financial performance. The management should ensure adoption of new techniques of financial risk management especially with the increased adoption of information communication technology.