Effect of Macroeconomic Variables on the Financial Performance of the Companies Listed at the Nairobi Securities Exchange

Abstract

The purpose of this research was to assess the impact of macroeconomic variables on financial performance of companies quoted under NSE. To achieve the objective, the researcher used secondary data obtained from Kenya National Bureau of Statistics, CBK and capital markets authority (CMA) for the period 2013 to 2017. Data collected from the sampled 30 companies listed at NSE included Net income, total assets, current liabilities, current assets, exchange rates, gross domestic product and inflation rates. The study utilized descriptive design where performance of the companies was analyzed over a five year period from 2013-2017. Statistical Package for Social Sciences was utilized. Findings indicate that macroeconomic variables significantly affected the financial performance. A regression analysis established that only 7.2% of the variation in return on asset (ROA) of companies listed at NSE was made clear by the changes in the factors studied. This study concluded that inflation rates have a positive impact on a company‘s performance. The study also concluded that exchange rates is volatile and has a negative impact on the ROA. It was recommended that companies make ample adjustment for exchange rates so that incase of domestic currency depreciation, the firms do not run at a loss. It was also recommended that companies listed at NSE may mitigate these risks by hedging the foreign exchange risk by purchasing spot contract to cushion against any negative swing.