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Financial Performance, firm value, return on asset, Tobin’s Q index
In the new global economy, financial performance has emerged as a major concern for shareholders and stakeholders. The study looks at the role of financial performance on firm value through a macro-level data. The study employed Agency Theory and Signalling Theory. The sample consisted of (39) firms listed at Nairobi Security Exchange (NSE) in Kenya. Representing a 61.905% of firms listed NSE, with 390 observations during the period (2010-2019). The study hypotheses were tested on a fixed random effect regression model. The study's findings indicate that financial performance has a positive significant correlation with firm value (r = 0.329, ρ<0.1), implying that improving performance increases company value. Additionally, financial performance proxy (ROA) had a positive significant effect on firm value (β = .3191, ρ < .05). Similarly, financial performance proxy (ROE) was also had a positive and significant effect on firm value. The study results confirmed that financial performance is a positive signal that enhance stock price, positively contributing to high firm value. The higher the profit the firm has made, the market will give a perception that the company is doing well and eventually the demand for shares and the stock market price will increase.
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