Firm Growth and Stock Performance: Evidence from Non-Financial Firms Quoted at the Nairobi Securities Exchange

Abstract

Firm growth has various undertones which can describe it in the perspective of market share change, sales growth, employment growth, total assets growth and also level of community participation. The aspect of sales growth involves revenue from sales which was considered in this study and applied as revenue change. Total assets growth was also applied to measure firm growth. Firms that create value through selling their products are rewarded by the market through generation of more revenue, which translates to profit and operating cash flow that finally accrues to the stockholders. Hence, stock performance was studied to determine if it is affected by firm growth. This study, therefore, aimed to investigate the effect of firm growth on stock performance. The study targeted the non-financial firms quoted at the Nairobi Securities Exchange in Kenya. Firm growth was measured using revenue change and total assets change. Thus, the study’s specific objectives were to determine the effect of revenue change on stock performance and establish the effect of total assets change on stock performance of non-financial firms quoted at the Nairobi Securities Exchange. The descriptive statistics indicated that the standard deviation values are all clustered around the corresponding mean. The ANOVA results depicted a statistically significant model at 5 percent. The variables are good predictors of stock performance as justified by an F statistic of 39.14 and the reported p-value of 0.0000 which is less than the 0.05 significance level. The Pearson’s coefficient findings observed that there was no correlation between revenue change and total assets change with stock performance. The panel regression results showed that revenue change and total assets change to a large extent affect stock performance of the listed firms. The study revealed that revenue change has a positive impact on stock performance and also total asset change has a positive effect on stock performance. The study therefore concluded that firm growth has a positive effect on stock performance of listed non-financial firms in Kenya