Relationship between internal factors and financial performance of agricultural firms listed in Nairobi securities exchange, Kenya.

Abstract

According various reports by KNBS Economic survey from 2012 to 2022, agricultural firms listed in NSE have reported mixed financial performance and financial element has not been fully factored. The reports mostly attribute performance of five agricultural firms to climate change either availability or non-availability of rain. This negates financial aspect that plays a key role in defining the overall financial performance of the organization. Further, KNBS Economic survey from 2012 to 2022 reports, depicts that some firms perform well others perform poorly to an extent of stopping to trade. The study aimed at investigating the relationship of internal factors and financial performance of agricultural firms listed at NSE, Kenya. The independent variables of the study were leverage, liquidity, efficiency and firm size while the dependent variable of the study will be Performance. The specific of the study will be to investigate the effect of leverage, liquidity, efficiency and the growth on the performance of agricultural firms listed at NSE, Kenya. The study will be confined to only listed firms listed at NSE, Kenya under agricultural sector only where the study will cover a period of 11 years from 2012 to 2023. Under the empirical literature review, the study discussed relevant current studies per variable. For the theoretical literature review Modigliani and miller’s capital structure theory, Liquidity preference theory, efficiency structure theory and trade-off-theory. A panel data regression model was applied to analyze data from 72 firm-year observations over 11years from 2012 to 2023. The results indicate a positive and statistically significant relationship between liquidity (coefficient = 0.215, p = 0.042), efficiency (coefficient = 24.04, p < 0.01), and firm size (coefficient = 2.677, p = 0.065) with financial performance, as measured by return on equity (ROE). In contrast, leverage showed a negative but statistically insignificant relationship (coefficient = -1.939, p = 0.824) with ROE. The findings suggest that improved liquidity, higher operational efficiency, and larger firm size are associated with better financial performance in agricultural firms. The study highlights the importance of managing these internal factors to improve profitability. Practical recommendations are provided for stakeholders to enhance financial performance, and areas for further research are suggested, including the exploration of external factors and the use of longitudinal studies to understand long-term trends in agricultural firm performance.