Effect of Firms’ Soundness on Shareholders’ Earnings of Listed Firms at the Nairobi Securities Exchange, Kenya

Abstract

The global changes in the business environment and the increased demand for improved shareholder’s earnings have prompted big firms to re-examine their  soundness. During the 2008 global economic crisis, many big institutions experienced challenges like liquidity challenges, poor leverage, and drop in share prices and decline in assets which led to the decline in the earnings of shareholders. current study was therefore necessary to analyse the effect of firm’s soundness on shareholders earnings of listed firms at the Nairobi Securities Exchange. The specific objectives of the study were: To evaluate the effect of liquidity on the shareholders earnings of firms listed at Nairobi securities exchange, Kenya, to establish the effect of firm size on shareholders earnings of firms listed at Nairobi securities exchange, Kenya, to examine the effect of leverage on shareholders earnings of firms listed at Nairobi securities exchange, Kenya and to analyse the effect of firm’s age on shareholders earnings of firms listed at the Nairobi securities exchange, Kenya. This study is expected to assist businesses in comprehending the soundness that must be emphasized in order to avoid financial losses. As a result, it  assist in informing the policies of listed companies in terms of liquidity, leverage, and assets, which is a measure of the firm's size. Firms should be able to develop a policy that improves shareholder earnings based on soundness. Finally, it is expected that shareholders and other potential investors will benefit from a clear understanding of the factors that influence earnings per share within the company. The Modigliani and Miller theory, as well as the Agency theory, were used to guide the research. A descriptive research design was used in this study. The study's target population was all listed companies on the Nairobi Securities Exchange over the period 2015 to 2021. The 64 companies were analyzed using the census study. Data had been collected using a secondary data collection sheet. The study employed secondary data  obtained from the published financial statements of the respective firms, from the Nairobi Securities Exchange and the Capital Markets Data. A panel regression model was employed in the analysis of data with the aid of the stata version 14.  The study found out that Liquidity had a positive significant effect on the shareholders earnings In addition, firms’ size had a significant  and positive effect on the shareholders ‘earnings. Moreover, Leverage  had a non significant positive effect on the shareholders earnings .The firms’ age on the other hand has a positive and significant effect on the shareholders earnings. The study recommends the following based on the findings. First the listed firms should enhance its liquidity by investing more on liquid assets. This should entail more investments in treasury bills, treasury bonds and other liquid stocks. They should also diversify their investments by investing in money markets. Additionally it should enhance its liquidity by controlling its overheads through getting rid of unnecessary expenses. Secondly, the listed firms needs to expand its asset base. As seen from the findings, firms size had a significant effect on the shareholder’s earnings meaning that the higher the size in terms of total assets, the higher the shareholders earnings. Firms should therefore expand its assets base by developing new products for the customers, increasing its customer base while expanding to new markets. Thirdly, the findings also indicate that firm’s age has a significant effect on the shareholder’s earnings. To sustain its performance and shareholder’s earnings, firms that have been in operation for many years compared to the rest should harness on the experience and economies of scale to ensure that they are able to sustain their performance. This should entail a thorough trend analysis of its performance over the years and designing better strategies based on the past challenges and its internal strengths.