The Impact of Adopting IFRS 16 on Performance of Companies Listed on the Nairobi Securities Exchange

Abstract

This study was conducted to determine the impact of adopting IFRS 16 on key selected financial performance ratios of companies listed in Nairobi Securities Exchange for four successive years’ period 2017-2022. The period was divided into two equal two year periods, one representing the period before the adoption of IFRS 16 (2017-2018) and the other remaining period (2019-2020) representing the post IFRS 16 adoption period. Secondary data, that are useful in computing key selected ratios relevant to the study, were collected from the audited statements of financial positions, statement of comprehensive income and statement of cash flows of the listed companies. The key selected financial ratios include return on assets, return on equity, net profit margin, current ratio, quick ratio, net operating cash flow coverage, debt ratio, equity ratio and debt to equity ratio. Shapiro walk tests was performed on the computed ratios to ascertain that they displayed normality before analysis. Descriptive analysis was carried out to get a sense of the data attributes of mean and standard deviation for all the nine ratios studied. This was followed by a two paired test for sample means to determine whether or not there are significant changes for the nine ratios before and after adoption of IFRS 16. Results for two periods did not significantly differ for all the nine ratios under study. Although all the ratios reported insignificant differences between the two periods, the debt ratio, debt to equity, net operating cash flows coverage, return on equity and quick ratio reported an increase while return on assets, net profit margin, current ratio and equity ratio reported a decrease in the post adoption period.