Profitability and Firm Value in Kenya’s Commercial Banks
Main Article Content
Keywords
Firm value, profitability, commercial banks, Kenya, panel data, agency theory, signalling theory
Abstract
The value of commercial banks is influenced by a variety of elements, with corporate financial characteristics and governance mechanisms playing a pivotal role. Regardless of whether investors are institutional or individual, their collective aim is to optimize potential returns. This shared goal drives banks to improve their market performance and overall valuation. However, deficiencies in corporate financial practices have often been linked to poor risk management and weak financial outcomes issues that have contributed to failures within Kenya's banking sector. This study investigates the influence of profitability on the market valuation of commercial banks in Kenya. The study employs an explanatory research design with a panel data approach, analyzing 190 firm-year observations from 38 licensed commercial banks in Kenya over the period 2019-2023. Data were sourced from audited financial reports. linear regression analysis, complemented by robust diagnostic tests was utilized to assess direct effects. The analysis reveals a significant positive direct effect of profitability on firm value (β = 4.14, p < 0.05). These findings underscore the critical importance of profitability for enhancing firm value in the Kenyan banking sector. This study contributes to agency theory and signalling theory by providing empirical evidence from an emerging market context.
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Angeline Mwangangi, Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900-30100, Eldoret, Kenya
Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900-30100, Eldoret, Kenya
Stephen Chelogoi, Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900-30100, Eldoret, Kenya
Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900-30100, Eldoret, Kenya
Jacob Yego, Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900-30100, Eldoret, Kenya
Department of Accounting and Finance, School of Business and Economics, Moi University, P.O. Box 3900-30100, Eldoret, Kenya