EFFECT OF EQUITY FINANCING ON SHAREHOLDER VALUE CREATION OF FIRMS LISTED AT NAIROBI SECURITIES EXCHANGE
EFFECT OF EQUITY FINANCING ON SHAREHOLDER VALUE CREATION OF FIRMS LISTED AT NAIROBI SECURITIES EXCHANGE
Kelvin Kitathe Kasee - Master of Science in Commerce (Finance and Economics), School of Business, KCA University, Kenya
Dr. Peter Kariuki - Lecturer, KCA University, Kenya
ABSTRACT
Management's efficient use of resources is crucial for economic growth. Positive shareholder wealth creation is a key indicator of a company's success. Decisions regarding equity financing should prioritize increasing shareholder wealth. Many NSE-listed firms have had mixed results in creating shareholder value in the past decade. The current study aimed to examine the impact of equity financing on the creation of shareholder value in firms listed at the NSE. The study analysed the effect of ordinary share capital, retained earnings, and equity reserves on shareholder value creation. A descriptive research design was adopted, and data was collected from audited annual financial reports of 59 firms listed at the NSE over a period of 10 years (2012-2021). The data was analyzed using STATA software, and panel data regression analysis was conducted to investigate the relationship between the independent and dependent variables. Diagnostic tests were also performed to ensure the validity of the regression analysis. The results indicated that all three independent variables had a statistically significant and positive association with shareholder value creation. Specifically, firms with higher retained earnings were found to have increased net income and profitability, leading to enhanced shareholder value creation. The study recommended that policy makers at the NSE prioritize effective equity financing options to positively impact shareholder value creation and attract potential investors. Additionally, publicly traded companies were advised to utilize efficient planning tools to determine optimal financing strategies that maximize shareholder value and attract more investors.
