Financial flexibility, board capital and financial performance of firms listed at Nairobi Securities Exchange, Kenya.

Abstract

The variations in financial performances of firms listed at Nairobi Securities Exchange in Kenya are dependent on the decision made by the Board of Directors more so on financial felxibility. Previous studies have shown positive, negative, U shape or no linkage of financial flexibility,board capital and financial performance with other themes. Firms listed in Kenya have financed their operation with more of equity as compared to debt. The purpose of this study therefore was to establish the effect of; firm liquidity, firm leverage, dividend pay-out and capital expenditure on the financial performance of firm listed at NSE in Kenya and later it established whether board capital has an interactive relationship between financial flexibility and financial performance. The studies vocal theory was stewardship theory others were trade-off theory, pecking order theory,liquidity preference model and Resource Dependency theory. The philosophical foundation underpinning the study was positivism and an explanatory research design. The study comprised of all the 65 firms listed at NSE in Kenya. The sample was done by use of census, where inclusive and exclusive criteria was done and secondary data was collected using content analysis. Inclusion criterion was based on all firms listed at the NSE from 2008 to 2017. All the suspended and delisted firms were excluded. As a result, panel data from audited financial reports were collected from 40 firms listed. 400 observations were therefore obtained from firms listed. Descriptive statistics; Mean, median standard deviation, skewness and kurtosis was used, while inferential statistics; was multiple regression analysis and Pearson moment correlation. In addition, panel regression analysis was employed to establish the nature and significance of the relationship between independent variables and dependent variable with firm liquidity ( β= -0.17; ρ˃0.05),firm leverage, (β= -.25, ρ<.05), dividend pay-out (β= - .22, ρ<.05) capital expenditure (β= .12, ρ<.05) to financial performance. Later the process was repeated with the moderating variable the results showed no significant moderating effect of board capital on the relationship between firm liquidity and financial performance (R2∆=0.00 β= -0.02; ρ˃0.05), a significant moderating effect of board capital on the relationship between firm leverage,(R2∆=0.07,β= 0.02; ρ<0.05) dividend pay-out (R2∆=0.05 β= -0.06; ρ<0.05) capital expenditure and financial performance (R2∆=0.07; β= 0.13; ρ<0.05) on financial performance. The study found out that the board capital had an enhancing moderation effect on firm leverage and capital expenditure while it had buffering effect on dividend pay-out on financial performance. Theoretically, the aspect of financial flexibility by the firms listed in NSE validates the stewardship theory, which is on the premise that directors and managers are trustworthy and good stewards of the resources entrusted to them. Besides, though dividend pay-outs are construed to transmit information about the future profitability of firms, the study findings elicited a negative link between dividend pay-outs and financial performance. Similarly, when moderated with board capital, dividend pay-outs still negatively impact on the financial performance.Finally the researcher recommends a policy guidelines on cashflow while minimizing liquidity risk,effective debt management,proper capital expenditure that need to be design alongside dividend policy and asset finance that provide return sufficient enough to cover related cost of borrowing to avoid erosion of reverves in servicing debt .Besides further study is recommended focusing on firms not listed in NSE to ascertain whether the study results hold