FIRM PERFORMANCE METRICS AND MARKET VALUE OF COMPANIES LISTED ON NAIROBI SECURITIES EXCHANGE, KENYA
Abstract
The objective of this study was to establish the relationship between firm performance metrics and market value of listed firms at the Nairobi securities exchange. The specific objectives included to establish the relationship between price earnings ratio, payout ratio and the earnings per share and market value of companies listed on the Nairobi securities exchange. The research adopted a cross-sectional correlation design. The study comprised of all the firms listed at NSE as at October 31, 2017 which were sixty-five (65) firms. The study used stratified random sampling. This research used secondary data extracted from the annual published financial statements of companies, specifically the income statements and the statements of financial position. The data was collected for the period ended 2013 up to 2017. Data analysis was done using SPSS. Determination of the relationship between independent and dependent variable adopted the use of multiple linear regression model. Multiple correlation coefficient (r) was applied to determine the direction and strength independent and depend variables. To establish the explanatory power of regression model coefficient of multiple determination (r2) was used. The significance of the model using the F-statistic was determined using Analysis of variance. The t statistic was used to find the impact of each predictor variable. The study concluded that an increase in P/E ratio and EPS significantly lead to an increase in the value of the firm while an increase payout ratio does not have a significant effect on the value of the firm. The study also concluded that there is a moderately positive correlation between P/E ratio and the value of the firm is moderate though significant and positive correlation. It also concluded that there is a positive but low correlation between payout ratio and the value of the firm. EPS and value of the firm however has a high positive and significant correlation. The regression results showed that 77.2% of variance in firm value of listed firms was explained by the variations in the firm performance matrices namely price earnings ratio, payout ratio and earnings per share (R2 = .772; Adjusted R2 = .758).
Key Word: Price Earnings Ratio, Payout Ratio, Earnings Per Share, Market Value.
CITATION: Said, A. A., & Kaplelach, S. (2019). Firm performance metrics and market value of companies listed on Nairobi Securities Exchange, Kenya. The Strategic Journal of Business & Change Management, 6 (3), 200 – 215.
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DOI: http://dx.doi.org/10.61426/sjbcm.v6i3.1307
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