The effect of sin activities on the financial performance of companies listed at Nairobi securities exchange

Abstract

This study sought to establish the effect of sin activities on the financial performance of companies listed at the Nairobi Securities Exchange. The study adopted a descriptive research design with the population consisting of all 63 listed firms in the NSE as at December 2013. The sample of the study consisted of the 20 high performing NSE companies. At the time there are only two sin companies in this index listed. Furthermore this study grouped 18firms into the non-sin companies‟ category and another 2 firms (BAT ad EABL) into the sin companies group. Secondary data was gathered from NSE financial reports data base for analysis which was done using the Statistical Package for Social Sciences (SPSS version 19) to generate the descriptive statistics and also to generate the trends results and correlation findings. One sampled T-Test was used to check whether the mean performance of Sin companies differ from the mean performance of non-sin companies. Findings on the analysis of variance (ANOVA) indicate that the overall model was statistically significant as indicated by an F statistic of 2.943 and p value less than 0.0498. The regression analysis revealed that the independent variables including log of asset which was used as a measure of companies total assets base and compounded annual growth rate which the measure of the company‟s growth rate were considered statistically significant in explaining the variation of financial performance of companies. Regression analysis results also showed that the relationship between log of assets, compounded annual growth rate and return on asset was positive. Nevertheless, some independent variables were insignificant as their p values were greater than 0.05. They include companies‟ age, leverage ratio and working capital ratio. This indicates that these variables are not key indicators of companies‟ financial performance. Correlation analysis results, T-tests statistics in general indicate that Sin companies‟ financial performance is higher compared to non-sin companies because of the factors such as high total assets base, higher compounded annual growth rate, higher working capital ratio, and lower leverage ratio. This study provides recommendations to financial managers to ensure that strategies are set aside to address key critical financial decisions arising in the company particularly developing good financial management technique to provide adequate responses to financial challenges and ensure effective working capital management.