MARKET CAPITALIZATION AND FINANCIAL PERFORMANCE OF MANUFACTURING FIRMS LISTED ON THE NAIROBI SECURITIES EXCHANGE
Abstract
Purpose of the study: The study examined the effect of market capitalization on financial performance of manufacturing firms listed on the Nairobi Securities Exchange.
Statement pf the problem: The contribution of manufacturing and associated industries to Kenya's GDP has been declining, from 9.3% in 2016 to 7.8% in 2022, significantly below the 15% target set by Vision 2030 and the 20% goal outlined by the Kenya Kwanza Government
Methodology: The target population included eight manufacturing and allied companies listed on the NSE, after excluding Mumias Sugar Company due to its receivership status. A correlational research methodology was employed, with secondary data collected using a data collection template covering a 10-year period from 2014 to 2023.The data was analyzed using both descriptive and inferential statistics, including regression and correlation analyses.
Findings: Correlation analysis found a positive and significant association between market capitalization and financial performance (r=0.4215, p=0.0001). Regression analysis further confirmed that market capitalization significantly predicts financial performance (β=0.7490, p=0.0050), with an R-squared value of 0.1776, indicating that market capitalization explains 17.76% of the variation in financial performance.
Conclusion: The study concludes that strengthening market capitalization positively impacts the financial performance of manufacturing companies listed on the NSE, and that enhancing corporate governance, operational efficiency, strategic asset utilization, and dividend policies are crucial levers for growth.
Recommendations: The study recommends that manufacturing companies listed on the NSE implement strategies to strengthen market capitalization by enhancing corporate governance, improving operational efficiency, conducting strategic share buybacks when appropriate, regularly assessing asset utilization efficiency, and establishing clear dividend policies. The Capital Markets Authority should support these efforts by developing policies that reduce transaction costs and promote greater market participation to help the sector approach its Vision 2030 contribution targets.
Keywords: Market Capitalization, Financial Performance, manufacturing firms, Nairobi Securities Exchange, Kenya
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