Effect of Selected Firm Characteristics on Financial Performance of Firms Listed in the Agricultural Sector at the Nairobi Securities Exchange

Abstract

A number of firm characteristics have been studied by many researchers, practioners and academicians to understand their effect on performance. This study sought to find the effect of selected firm characteristics namely firm size, leverage, firm age, liquidity, and board size on firm financial performance as measured by return on assets. The study used cor relational research design in an attempt to investigate the effect of firm characteristics on firm financial performance and also the extent of causation was documented by running a multi variate linear regression analysis. The study’s population was seven agricultural firms listed at the Nairobi Securities Exchange and the researcher selected six out of the seven listed firms due to inaccessibility of the seventh listed firm from the year 2007 to 2012. The study evidenced that the only variables that were statistically significant were liquidity and board size and the other three variables that were not statistically significant were namely firm size, leverage and firm age. Though firm size, leverage, firm age, and liquidity were positively related to firm financial performance and board size was the only variable that was negatively related to firm financial performance. The study recommends to the management to focus efforts on those variables that positively affect their long run financial performance such as increase firm sizes, use of more leverage up to a point when net costs are suffered as a result of excessive leverage, reduction of firm and product life cycle, extending more credit sales to customer and paying of suppliers promptly as per terms and reduction of board size as it results in more expenses.