An examination of the relationship between financial management practices and stock returns of listed companies in the Nairobi Securities Exchange

Abstract

This study aims at identifying the relationship between financial management practices which are and stock returns of listed companies in Nairobi Securities Exchange. To achieve the study’s objectives, the researchers reviewed the annual reports of the public companies listed in Nairobi Securities Exchange, and also reviewed the Nairobi Securities Exchange’s statistical bulletins for the years 2008-2012 to get the accounting variables and the stocks’ closing prices. The study consisted of (61) listed companies as at 31 December 2012. The study concluded that financial management practices (investing decisions, Dividend policies, financing activities and the liquidity management) explained (64.80%) of the volatility in stock return while (35.20%) of the volatility in stock returns referred to other reasons. The results of the study also showed that there was an important strong positive correlation between dividend per share (76.40%), Current ratio (39.10%), Return on investment (18.90%) and weak positive correlation with debt/equity ratio (3.10%) and volatility in stock returns. The researcher recommended that a further research be conducted to establish other factors explaining the volatility in stock returns in the Nairobi Stock Exchange and other jurisdictions.