Equity Share Capital and Market Capitalization of Non-Financial Firms Listed at the Nairobi Securities Exchange, Kenya
DOI:
https://doi.org/10.47604/ijfa.3341Keywords:
Equity Share Capital, Market Capitalization, Non-Financial FirmsAbstract
Purpose: The diminishing growth of many of the non-financial enterprises listed at the Nairobi Securities Exchange (NSE) discourage investors from investing in these firms. Concerning the question of whether there is an ideal financial structure that maximizes the firm's value, academics, business managers, investors, and other stakeholders face a significant challenge in ascertaining the ideal financial structure of these firms. The study general objective was to study the effect of equity share capital on market capitalization of non-financial firms listed at the Nairobi Securities Exchange.
Methodology: The target population of the study comprised of 45 non-financial firms listed at the NSE for a period of seven years. A descriptive research design was adopted with a census method focusing on 45 non-financial firms listed at the NSE, Kenya. Data was encoded and processed using statistics software (STATA version 18). Inferential statistics was adopted using the panel regression model. A data collection sheet was used to collect data of the listed non-financial firms and the outcome presented in tables using statistics such as means, standard deviation, frequencies, and percentages. The findings indicated the presence of a weak and positive correlation between equity financing and market capitalization. Panel regression model was applied for data analysis.
Findings: The findings of the panel regression model indicated a positive and significant effect between equity financing and market capitalization of non-financial firms listed at the NSE, Kenya.
Unique Contribution to Theory, Practice and Policy: The study was guided by the Market Timing Theory. The study recommended to managers to have equity shares leveraged by stakeholders in order to increase market capitalization and build resilience in the face of unstable market conditions.
Downloads
References
Abdelkarim, M., & Almumani, Y. (2018). An empirical study on effect of profitability ratios & market value ratios on market capitalization of commercial banks in Jordan. 9 (4), 39–45.
Abor, J. Y., Gyeke-Dako, A., Fiador, V. O., Agbloyor, E. K., Amidu, M., & Mensah, L. (2019). Money and banking in Africa. Springer.
Afolabi, A., Olabisi, J., Kajola, S. O., & Asaolu, T. O. (2019). Does leverage affect the financial performance of Nigerian firms? Journal of Economics and Management, 37(3), 5-22.
Akingunola, R. O., Olawale, L. S., & Olaniyan, J. D. (2018). Capital structure decision and firm performance: Evidence from non-financial firms in Nigeria. Acta Universitatis Danubius. Œconomica, 13(6).
Alduais, F., Alsawalhah, J., & Almasria, N. A. (2023). Examining the impact of corporate governance on investors and investee companies: Evidence from Yemen. Economies, 11(1), 13.
Almumani, M. A. Y. (2018). An empirical study on effect of profitability ratios & market value ratios on market capitalization of commercial banks in Jordan. International Journal of Business and Social Science, 9(4), 39-45.
Akoto, E. O., & Akoto, E. V. (2014). The configural approach to organisational commitment: An application in Ghana. SA Journal of Industrial Psychology, 40(2), 1-11.
Banafa, A. S. A. (2016). The effect of leverage, liquidity, and firm size on financial performance of listed non-financial firms in Kenya (Doctoral dissertation, COHRED, Business administration, JKUAT).
Baum, C. F., Forti Grazzini, C., & Schäfer, D. (2020). Institutional diversity in domestic banking sectors and bank stability: A cross-country study.
Bistrova, J., & Lace, N. (2017). Corporate governance influence on firms’ financial performance in CEE countries.
Corona Dueñas, J. A., & Corona Pacheco, C. (2019). Impacts of Fiscal Reform on Dividends: Evidence from Mexico. Accounting & Taxation, 11(1), 71-81.
Dawar, V. (2014). Agency theory, capital structure and firm performance: some Indian evidence. Managerial Finance, 40(12), 1190-1206.
Diantimala, Y., Syahnur, S., Mulyany, R., & Faisal, F. (2021). Firm size sensitivity on the correlation between financing choice and firm value. Cogent Business & Management, 8(1), 1926404.
Dinayak, P. (2014). The impact of initiating dividend payments on shareholders’ wealth. Journal of Business, 5(10), 13-15.
Ebaid, I. E. S. (2022). Corporate governance mechanisms and corporate social responsibility disclosure: evidence from an emerging market. Journal of Global Responsibility, 13(4), 396-420.
Erturk, I., Froud, J., Johal, S., Leaver, A., & Williams, K. (2007). Against agency: a positional critique. Economy and society, 36(1), 51-77.
Fama, E. F., & French, K. R. (2015). A five-factor asset pricing model. Journal of financial economics, 116(1), 1-22.
Foyeke, O. I., Olusola, F. S., & Aderemi, A. K. (2016). Financial structure and the profitability of manufacturing companies in Nigeria.
Gambacorta, L., Tsatsaronis, K., & Yang, J. (2014). International banking and financial market developments. BIS Quarterly Review, 3.
Githire, C., & Muturi, W. (2015). Effects of capital structure on financial performance of firms in Kenya: Evidence from firms listed at the Nairobi securities exchange. International journal of economics, commerce and management, 3(4), 1-10.
Harash, E., Al-Timimi, S., & Alsaadi, J. (2014). The influence of finance on performance of small and medium enterprises (SMES). Technology, 4(3), 161-167.
Harelimana, J. B. (2017). The role of risk management on financial performance of banking institutions in Rwanda. Business and economics journal, 8(1), 1-5.
Hirdinis, M. (2019). Capital structure and firm size on firm value moderated by profitability.
Isola, W. A., & Akanni, L. O. (2015). Corporate financial structure of nonfinancial quoted companies in Nigeria. Managing Global Transitions, 13(3), 267.
Iqbal, J., Farooq, M. U., Sandhu, M. A., & Abbas, M. (2018). The impact of capital structure on the financial performance of SMEs in Pakistan. Pakistan Journal of Social Sciences, 38(2), 363-374.
Kajola, S., Apelogun, K., & Oworu, O. (2017). Managerial Share Ownership and Capital Structure Decision of Nigerian Listed Non-Financial Firms. Journal of Humanities, Social Science and Creative Arts, 12(1), 105-119.
Khadka, R. (2020). Awareness and Attitude towards Emergency Contraception. Sotang, Yearly Peer Reviewed Journal, 2(1), 131-143.
Khémiri, W., & Noubbigh, H. (2018). Determinants of capital structure: Evidence from sub-Saharan African firms. The Quarterly Review of Economics and Finance, 70, 150-159.
Leland, H. E. (1998). Agency costs, risk management, and capital structure. The Journal of Finance, 53(4), 1213-1243.
Liaqat, I., Saddique, S., Bagh, T., Khan, M. A., Naseer, M. M., & Khan, M. A. (2017). Capital structure as driving force of financial performance: Case of energy and fuel sector of Pakistan. International Journal of Accounting and Financial Reporting, 7(1), 86-101.
Martínez-Sola, C., García-Teruel, P. J., & Martínez-Solano, P. (2018). Cash holdings in SMEs: speed of adjustment, growth and financing. Small Business Economics, 51, 823-842.
Mayasa, T. (2020). Keys to Stem Success: The Black Studies Effect (Doctoral dissertation, San Diego State University).
Meckling, W. H., & Jensen, M. C. (1976). Theory of the Firm. Managerial Behavior, Agency Costs and Ownership Structure.
Muchiri, M. J., Muturi, W. M., & Ngumi, P. M. (2016). Relationship between Financial Structure and Financial Performance of Firms Listed at East Africa Securities Exchanges. Journal of Emerging Issues in Economics, Finance & Banking, 5(1).
Ng’ang’a, P. N. (2017). Effect of ownership structure on financial performance of companies listed at the Nairobi securities exchange in Kenya (Doctoral dissertation, COHRED-JKUAT).
Nyabaga, R. M. I., & Wepukhulu, J. M. (2020). Effect of firm characteristics on financial performance of listed commercial banks in Kenya. International Journal of Economics and Financial Issues, 10(3), 255.
Ofosu-Yeboah, N. (2023). The Effect of Reward Systems on Employees Working Behaviour: A Case of a Ghanian Institution.
Omai, M. D., Memba, F. S., & Njeru, A. G. (2018). The effect of share capital finance on profitability of petroleum marketing firms in Kenya. VI (1), 410-422.
Omolo, A. A. (2018). Lending model and loan repayment among financial institutions in Kakamega municipality, Kenya (Doctoral dissertation, university of nairobi).
Omrawoo, T. V., Jaunky, V. C., & Ramesh, V. (2017). Determinants of Capital Structure of Non-Financial Firms in Mauritius: A Panel Data Approach. Recent Advances in Business and Economics, 194-220.
Onguka, D., Iraya, C. M., & Nyamute, W. L. (2021). Corporate governance, capital structure, ownership structure, and corporate value of companies listed At the Nairobi Securities Exchange. European Scientific Journal, 17(15), 300-334.
Onyiego, G. O. (2019). Determinants of financial performance of small and medium sized enterprises in tourism sector in Mombasa County and environs, Kenya (Doctoral dissertation, JKUAT-COHRED).
Opungu, J. A. (2016). The effect of capital structure on profitability of non-financial firms listed at Nairobi security exchange (Doctoral dissertation, KCA University).
Pavone, P. (2019). Market capitalization and financial variables: Evidence from Italian listed companies. International Journal of Academic Research Business and Social Sciences, 9(3), 1356-1371.
Rubunda, E. (2023). Finance Structure and the Growth of Small and Medium Size Manufacturing Enterprises in Rwanda (Doctoral dissertation, JKUAT-COHRED).
Safiuddin, M., Islam, M. M., & Anisuzzaman, M. (2015). Impact of financial structure on firm’s performance: A study on financial and nonfinancial sector in Bangladesh. European Journal of Business and Management, 7(3), 30-38.
Serwadda, I. (2019). The effects of capital structure on banks' performance, the Ugandan perspective. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis.
Shuaibu, K., Ali, I., & Amin, I. M. (2019). Company attributes and firm value of listed consumer goods companies in Nigeria. Journal of Research in Humanities and Social Science, 7(5), 40-49.
Shubita, M. F., & Alsawalhah, J. M. (2022). The relationship between capital structure and profitability. International Journal of Business and Social Science, 3(16), 104-112.
Succurro, M., & Mannarino, L. (2014). The impact of financial structure on firms’ probability of bankruptcy: a comparison across western Europe convergence regions. Regional and Sectoral Economic Studies, 14(1), 81-94.
Vătavu, S. (2015). The impact of capital structure on financial performance in Romanian listed companies. Procedia economics and finance, 32, 1314-1322.
Vuong, N. B., Vu, T. T. Q., & Mitra, P. (2017). Impact of capital structure on firm’s financial performance: Evidence from United Kingdom. Journal of Finance & Economics Research, 2(1), 16-29.
Yazdanfar, D., & Öhman, P. (2015). Debt financing and firm performance: an empirical study based on Swedish data. The Journal of Risk Finance, 16(1), 102-118.
Yemi, A. E., & Seriki, A. I. (2018). Retained earnings and firms' market value: Nigeria experience. The Business & Management Review, 9(3), 482-496.
Yusof, Y., & Ismail, S. (2016). Determinants of dividend policy of public listed companies in Malaysia. Review of International Business and Strategy, 26(1), 88-99.
Younus, S., Ishfaq, K., Usman, M., & Azeem, M. (2014). Capital structure and financial performance: Evidence from Sugar industry in Karachi Stock Exchange Pakistan. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4(4), 272-279.
Zogning, F. (2017). Agency theory: A critical review. European journal of business and management, 9(2), 1-8.
Zurigat, Z. M., & Jawdat, N. (2015). Testing the partial adjustment model of optimal cash holding: Evidence from Amman Stock Exchange. Corporate Ownership & Control, 15.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 Zacchaeus Agembo Agembo, Joshua Matanda, Charles Roche, Charles Roche
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
