Financial Characteristics and Firm Value of Commercial Banks Listed at Nairobi Securities Exchange, Kenya

Abstract

Firm value is not only critical for ascertaining the market value of the firm, but it also enhances industry value and the economy's prosperity. There exists substantial empirical literature in Kenya on the link between a company's value and financial characteristics. However, the studies fail to provide a strong link between value of listed commercial banks and their financial characteristics. Hence, the purpose of the study was to assess the relationship between financial characteristics and firm value of commercial banks listed at Nairobi Securities Exchange, Kenya. The specific objectives were to determine the effect of loan book value, shareholders funding, return on investment and dividend policy on firm value of commercial banks listed at the NSE in Kenya. Positivism philosophy and causal research design were adopted. Eleven publicly listed commercial banks were studied. Panel data was collected from published audited financial statements of the commercial banks studied for year 2014 to year 2018. Data was analyzed using descriptive statistics, Pearson's simple correlation and panel regression analysis. The study found that loan book value had no significant effect on firm value of commercial banks listed at the NSE (p = 0.462). Besides, the study found that shareholders had no significant effect on firm value of commercial banks listed at the NSE (p = 0.988). Moreover, the study found that dividend policy had no significant effect on firm value of commercial banks listed at the NSE (p = 0.610). Further, Return on Investment had a significant positive effect on firm value of commercial banks listed at the NSE (p < 0.05). Consequently, the study recommends that commercial banks critically assess return on investment on projects before undertaking them to enhance their value. Moreover, payment of dividends should be considered after the firm has taken up all high yielding investments. In addition, commercial banks should focus more on quality of loan book rather than the size of the loan book.