Effects of Financial Decisions on the Firm Value: Evidence From Insurance and Banks Listed at Nairobi Securities Exchange

Abstract

Financial decisions play a pivotal role in shaping a firm's overall value, encompassing various facets of its financial landscape and serving as instrumental determinants. This study seeks to investigate the impact of financial decisions on the firm value of commercial banks and insurance companies listed on the Nairobi Securities Exchange (NSE) in Kenya. To achieve this objective, a quantitative descriptive research design was employed. In this research, a census approach was adopted, involving an examination of all 12 commercial banks and 6 insurance companies listed on the NSE, totaling 18 firms. The selected study period spans from 2017 to 2022, allowing for a comprehensive analysis of recent developments within the banking and insurance sectors. For the purpose of data analysis, SPSS software was employed, well-recognized for its efficiency in data management, econometric applications, and the generation of descriptive metrics and statistical parameter estimations. The coefficient of determination, a metric that gauges the predictive capability of a statistical model, was used to assess to what extent the model can forecast an outcome. The correlation coefficient (R) was calculated to be 0.773, signifying a robust correlation of 77.3% among the variables examined in this research. The coefficient of determination, represented by R-squared, indicates that 59.8% of the variation in Firm Value can be attributed to Business Growth, Dividend Decisions, Capital Structure, and Corporate Investment. Conversely, 40.2% of the variation in firm value remains unaccounted for and is influenced by factors not addressed in this project. Furthermore, the study found that the variables of capital structure, dividend decisions, corporate investment decisions, and business growth exhibited Tolerance values of 0.997, 0.800, 0.832, and 0.958, respectively, surpassing the 0.2 threshold. Additionally, their VIF values were 1.003, 1.250, 1.202, and 1.044, respectively, all falling below the 10 thresholds. In summary, the researcher concluded that there was no evidence of multicollinearity among the regression variables examined in the study. The unstandardized coefficients in column B played a crucial role in constructing the predictive formula. Consequently, with all factors held constant, the autonomous effect of firm value is 0.021. When all factors remain stable, a unitary change in capital structure results in a negative effect on firm value of -0.005. Similarly, a one-unit change in dividend decisions leads to a negative impact on firm value of -0.081. Conversely, a unitary change in corporate investment decisions yields a positive effect of 0.038 on the dependent variable, firm value. Additionally, business growth exerts a positive influence of 0.001 on firm value when all other factors are held constant.