Effect of Innovations on Financial performance of Commercial and Service Firms Listed at the Nairobi Securities Exchange

Abstract

Success of many firms is dependent on efficient operational processes resulting from additional investments in innovations that promote a firm’s internal efficiency. Thus innovation strategies that firms undertake should assist in identifying and exploring new revenue avenues and improving customer satisfaction via good service delivery. Innovation strategies involve the adoption of systems providing capabilities that enable and enhance processes tied to production and provision of services. The objective of this research study was assessing effect of innovations on performance of NSE listed commercial and service firms. The population for the research was all the 11 NSE listed commercial and service firms. Predictor variable in this research was innovations operationalized as the number of new products, services, processes and markets in a given year. The control variables included liquidity given by current ratio, firm size given by natural log of total assets and management efficiency given by total revenue to total assets per year. Financial performance was the response variable given by return on assets. Secondary data was for five years (January 2015 - December 2019) annually. Descriptive cross-sectional design was used in analysis of the study variables. Analysis was made using SPSS software. Findings produced R-square value of 0.284, meaning that 28.4 percent of changes in financial performance among commercial and service firms is the result of variations in the chosen independent variables while 71.6 percent variation in financial performance of NSE listed commercial and service firms was the result of other factors which are not highlighted. This research showed independent variables had a moderate association with firm’s performance (R=0.533). ANOVA results showed that the F statistic was substantial at 5% with p=0.003. This showed that the overall model was appropriate in explaining how the selected independent variables impact financial performance. Findings also showed that innovations, liquidity and management efficiency have a positive and statistically substantial influence on performance of the NSE listed commercial and service firms. Firm size was statistically insignificant in this study. This recommendation is that NSE listed commercial and service firms should focus on enhancing their innovations, liquidity positions and management efficiency as these three have a significant influence on their financial performance.