Gross domestic product and financial performance of energy and petroleum companies listed at the Nairobi securities exchange in Kenya

Abstract

Potential investors in any sector seek to establish the financial performance of the sector before investment. The key factors that would affect the variability of the expected returns ought to be taken into consideration, and appropriate measures taken to mitigate any inappropriate conditions. This study sought to investigate the effect of gross domestic product on the financial performance of energy and petroleum firms listed at the NSE in Kenya. The study employed a descriptive research design. All four energy and petroleum firms are listed on the NSE. Secondary data covering a period of seven years from 2017 to 2023 was sourced from published annual reports and financial statements of all four listed energy and petroleum firms at the NSE in Kenya, National Bureau of Statistics periodic reports, using a data collection sheet. Data was analyzed with the aid of STATA18 software using descriptive and inferential statistical tools. Descriptive tools included frequencies, percentages, means, variances, and standard deviations. Inferential statistics tools included Pearson’s Product correlation and panel regression analysis, which were used in examining how macroeconomic variables affect the financial performance of listed energy and petroleum firms at the NSE Kenya. The study revealed that the R2 value of 56% of the variations in the perceived financial performance can be explained by the variations in the gross domestic product, while factors not studied in this research contributed 44% of the variance in the dependent variable. Panel regression results concluded that gross domestic product significantly affects the financial performance of energy and petroleum firms listed at the NSE, Kenya. The study recommended that firms and policymakers should establish a Macroeconomic Risk Monitoring Unit within the Energy and Petroleum Regulatory Authority (EPRA) to track GDP in real time and guide strategic pricing, investment, and hedging decisions. Additionally, the NSE and CMA could jointly develop a Macroeconomic-Adjusted Energy Performance Index (MEPI), a specialized benchmark that tracks how listed energy firms respond to Kenya’s GDP cycles. This would promote transparency, attract investors, and facilitate evidence-based policymaking for energy-sector resilience.