Effect of Technological Innovations on the value of manufacturing firms listed at the Nairobi Securities Exchange

Abstract

A major assumption that many studies on improvement of operations is that innovations adoption is directly related to improvements in firm value. The success of many firms is mainly dependent on efficient operational processes resulting from additional investment in technological innovations which enhance the internal efficiencies of a firm. Thus innovation strategies adopted by firms should assist in the identification and exploration of new revenue avenues and improve firm value. The objective was assessing effect of technological innovations on value of NSE listed manufacturing firms. The population for the research was all the 9 NSE listed manufacturing firms. Predictor variable in this research was technological innovations operationalized as the ratio of R&D expenditure to total sales revenue. The control variables included liquidity given by current ratio, leverage given by total debt to total assets and management efficiency given by total revenue to total assets per year. Firm value was the response variable given by market value to book value of equity. Secondary data was for five years (January 2015 - December 2019) annually. Descriptive cross-sectional design was used in analysis of the study variables. Analysis was made using SPSS software. Findings produced R-square value of 0.259, meaning that 25.9 percent of changes in value among manufacturing firms is the result of variations in the chosen independent variables while 74.1 percent variation in value of NSE listed manufacturing firms was the result of other factors which are not highlighted. This research showed independent variables had a moderate association with firm’s values (R=0.509). ANOVA results showed that the F statistic was substantial at 5% level with p=0.000. This implies that the overall regression model appropriate in explaining how the independent variables impact firm value. Findings also showed that technological innovations, liquidity and management efficiency positively and significantly influence value of the NSE listed manufacturing firms. Financial leverage was statistically insignificant in this study. This recommendation is that NSE listed manufacturing firms should focus on enhancing their technological innovations, liquidity positions and management efficiency as these three have a significant influence on their firm value.