The Relationship Between Corporate Investments and Growth of Non-financial Firms Listed at the Nairobi Securities Exchange

Abstract

Corporate investments are important for companies to ensure operational efficiency and to stimulate growth. However, corporate investment decisions tend to be inherently risky as well as highly unpredictable whether the initial investment will be recouped within anticipated period. At the NSE, corporate investment decisions are a key guide to the corporate wealth maximization goal. However, most of the quoted entities have experienced a reduction financial profitability in recent years. The market value of most quoted companies indicate a decline in stock prices, which leads to decline in market capitalization of the quoted entities. This study sought to determine the effect of capital investments on growth of non-financial corporations quoted at the Nairobi Securities Exchange. This study was based on modern portfolio theory (MPT), the agency theory and the Q theory of investment. This study employed a descriptive study design and the study’s population included the 46 non-financial corporations quoted at NSE as on December 31, 2022. This study used secondary panel data including cross-section and time series elements which was obtained through a collection sheet for 5 years from 2018 to 2022. The data gathered was summarized descriptively utilizing mean and standard deviation, followed by the panel data regression approach to assess whether the control and explanatory indicators influence the response variable. The study results revealed that corporate investments had a positive and significant effect on firm growth respectively. The3results show that financial leverage recorded a negative and significant3relationship with firm growth while firm size had a positive and insignificant relationship with firm growth respectively. Further, firm age had a positive and substantial effect on firm growth while profitability had a positive and significant effect on firm growth of the non-financial firms listed at the NSE. The conclusion made was that corporate investments, financial leverage, firm age and profitability significantly affects growth of nonfinancial corporations quoted at the NSE. This study thus recommends that the management3of NSE quoted nonfinancial firms should ensure they adopt effective and optimal investment with positive net present values and that maximize their entities value as well as growth both in the short term and long term respectively. The study’s results shall be valuable to management of NSE quoted nonfinancial firms, policymaking entities and complement the obtainable empirical literature on corporate investments and firm growth.