Firm specific factors and financial performance of firms Listed at the Nairobi securities exchange: the moderating Role of macroeconomic factors

Abstract

This paper explored the predictors of financial performance among Nairobi Securities Exchange (NSE) listed firms with a special emphasis on the interaction between firm-specific institutional characteristics and the moderating effect of the respective industries. Given the dynamism of the Kenyan capital markets, the study integrated both financial and non-financial variables, including ownership structure and corporate governance systems, to enable a comprehensive analysis of performance. The research design was quantitative and utilized a balanced panel dataset of 62 companies. Panel regression models were employed to estimate the relationships through quantitative analysis. The theoretical foundation was grounded in Agency Theory, Resource-Based View, and Institutional Theory, all situated within an emerging market context. The study found that ownership structure, corporate governance, firm characteristics, and macroeconomic conditions collectively influence the financial performance of firms listed on the Nairobi Securities Exchange (NSE). Concentrated and institutional ownership improve performance through stronger monitoring and accountability, while excessive managerial ownership hinders it. Effective corporate governance, especially independent boards and audit committees enhance transparency and profitability, though board size has minimal impact. Larger, liquid firms outperform smaller or highly leveraged ones, underscoring the importance of prudent financial management. Although macroeconomic factors alone were insignificant, stable economic conditions amplified the positive effects of ownership concentration and good governance on firm performance.