Asset growth effect on stock returns at the Nairobi securities exchange limited

Abstract

Asset growth is form of investment in which the company management adds value to shareholders wealth. This lucrative investment strategy is emerging to be the normative idea for many firms. It is also common knowledge for the management of a company to expect that an asset bought now as an investment will perform better in the future. However, the management has to assess the derivative impact of investing heavily on assets in relation to (long) term effect stock return if it is a listed company. Thus this project presents the first empirical evidence on the existence of asset growth effect in the Nairobi Securities Exchange. We analyse Kenyan non financial listed companies over the 2001 - 2011 period inclusive, to investigate whether the rate of growth in total asset has predictive power over subsequent stock returns. Using Portfolio sorting method we investigate the asset growth effect on stock returns not considering the firm size as factor. This project proves that Kenya Stock market non financial listed companies are inefficient in the allocating capitals and valuing investment opportunities since the negative asset growth effect on stock returns exist. Numerical instructions on the Kenyan listed firms data were performed which supports the theoretical analysis. Thus, this project is an important part of investment policy formulation of existing and new companies in their future endeavour of stock returns maximization