Effect of Private Equity Funding on Earnings Per Share Among Firms Listed at the Nairobi Securities Exchange

Abstract

The analysts always concentrate on financial statements for benchmarking, brainstorming and predicting the future trends. Nonetheless, investors look keenly at the asset values and their earning. Hence, their decision making is pegged on expected returns. EPS is the lynchpin upon which investors make vital decisions as it intelligibly discloses the return on investment on each share invested. The active investors change decision periodically on buying or selling shares with objective of optimizing the returns. Private equity is a fundamental tenet of firm financing as it represents an alternative source of funding to businesses. Moreover, the private funding has played significant part in business growth through not only cash infusion but also diverse knowledge infusion. Subsequently, the firms are beneficial to the owners whenever they maximize the opportunities, engage the efficient optimization of resources and reap greatest return. Therefore, this study explored the effect of private equity funding on the earnings per share of quoted companies in Kenya. Besides that, a descriptive survey was employed as the research design in the study to articulate the causal connection. Subsequently this study sampled 35 listed companies that received private equity funding from year 2017 to 2021. Consequently, the data was sourced from private equity funder’s websites and journals involving companies that have used PE between the years 2017 to 2021. Secondary data collected was then assessed using descriptive statistics, correlation as well as regression analyses, which sets up the connection between the private funding and earnings per share. The analysis was henceforth done by applying SPSS. In that case, it elucidated that earnings per share over study’s timeframe registered a lowest value of 0.015 and a greatest value of 0.089. Furthermore, the average of 0.0482 was recorded hence implying average earnings per share for the period was 4.84%. Correspondingly, standard deviation of 0.02304 empirically portrayed minimal variability. Moreover, the private equity posted a lowest figure of 0.203 and the maximum was pegged at 1.146. From the findings, a strong positive correlation of 92.3% of private equity funding and earnings per share. Correlation coefficient value of 0.852 showed that private equity explained 85.2% changes in earnings per share. This also meant that the 14.8% of changes in earnings per share was related to factors not in this experimentation. The significance value obtained from the table 0.000<p (0.05), implied that the model was statistically significant. It wrapped up by advocating for use of primary data for analysis and increasing the scope of investigation in further and future similar research.