The Effect of Credit Risk Management on Value of Commercial Banks Listed at Nairobi Securities Exchange

Abstract

Commercial banks are considered as fundamental catalysts of economic change and are the leading financial institutions. The study assesses the influence of credit risk management on the firm value of commercial banks quoted at NSE. This assessment optimized an explanatory research design. It is usually carried out to identify and describe certain links between various components of the phenomena under investigation. The investigation concentrated all the listed commercial financial institutions in Kenya over a period of 5 years from 2018 to 2022. Hence, the population was the rest of the 10 listed banks trading in NSE at the specific timeframe of the study. The data was collected using a secondary covering a 5-year period that spans from 2018 to 2022. Descriptive statistics disentangle expeditiously on the distribution and variability of the variables, offering valuable insights into their respective ranges and extremities. Holding all other factors constant, the autonomous value of firm value was found to be 0.2088. A unit change in non-performing loans yielded a significant positive effect (p=0.000<0.05) of 0.8240 on firm value. Similarly, a unit change in capital adequacy resulted in a significant negative effect (p=0.003<0.05) of -1.905 on firm value when other factors were held constant. However, a unit change in loan loss provisions showed an insignificant positive effect (p=0.884>0.05) of 0.150 on the dependent variable firm value under constant conditions. Likewise, firm size had an insignificant effect (p=0.807>0.05) of 0.047 on firm value when there was a unit variation and all other determinants remained unchanged. From this finding, researcher used the linear regression model. The regression analysis portrayed a robust positive correlation of 90.85% in the midst of the variables, supported by a correlation degree of 0.9085. Furthermore, the correlation coefficient (R Square) of 0.8254 pointed that 82.54% of the variations in firm value can be attributed to Firm Size, Capital Adequacy, Loan Loss Provisions, and Non-Performing Loans. The remaining 17.46% of the deviations in firm value were influenced by factors that were not prioritized in this investigation. Furthermore, the ANOVA table confirmed the.......................................................