EFFECT OF PROFITABILITY ON SHAREHOLDER VALUE OF BANKS LISTED AT THE NAIROBI SECURITIES EXCHANGE
Abstract
Whereas profitability is expected to affect the value of firms, it is not clear how they affect the shareholder value for banks listed at the Nairobi Securities Exchange (NSE). Accordingly, this study evaluated the effect of profitability on the shareholders’ value of the banks listed at the Nairobi Securities Exchange. The target population was commercial banks companies listed on the Nairobi Securities Exchange. The study was designed as a census study due to the small size of population of eleven listed banks at the NSE. The study used secondary data. The secondary data was sourced from published audited financial statements of NSE listed banks for the years 2012 to 2016 on a quarterly basis. This formed 20 quarterly observations for each variable. Further data on share prices and market value of banks was sourced from the NSE database. The study adopted a descriptive research design. It used linear regression analysis of shareholder value on profitability to establish the statistical significance of the coefficient of profitability indicator at 95% confidence interval using the t-statistic and p-value to test the null hypothesis that profitability has no significant effect on shareholder value. The findings indicated that firm’s profitability had a positive effect on shareholders’ value. The study was limited by the sole focus on listed commercial banks and therefore did not take into account the uniqueness of non-listed commercial banks. It also only focused on banks and left out analysis of non-bank listed firms at the NSE. It was therefore suggested that a similar study be carried out not only for all banks both quoted and unquoted, but also for non-bank companies listed at the Nairobi Securities Exchange.
Key Words: Profitability, Financial Performance, NSE
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DOI: http://dx.doi.org/10.61426/sjbcm.v5i2.758
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