Effect of Firm Size on The Relationship Between Liquidity And Firm Value of Firms Listed on The Nairobi Securities Exchange

This study investigates the moderating effect of firm size on the relationship between liquidity and firm value among companies listed on the Nairobi Securities Exchange (NSE). Liquidity is essential in ensuring financial stability and market confidence, while firm size may influence how liquidity impacts firm valuation. The study employs a longitudinal research design using panel data from 51 NSE-listed firms spanning 15 years (2007–2022). Data were obtained from audited financial statements and reports, ensuring accuracy and reliability. Liquidity was measured using short-term liquidity (mean = 0.4722, SD = 0.2659), asset convertibility (mean = 0.1885, SD = 0.0986), and new debt liquidity (mean = 0.3904, SD = 0.2097). Firm size was operationalized using total assets (log-transformed mean = 16.6046, SD = 4.5559) and number of employees (log-transformed mean = 2.7847, SD = 1.6473), while firm value was measured using Tobin’s Q (mean = 1.5686, SD = 0.8152). Descriptive statistics reveal moderate liquidity levels across firms, with varying firm sizes influencing liquidity management. The study employs fixed-effects regression analysis, where the results indicate that firm size significantly moderates the liquidity-value relationship. The interaction term between liquidity and firm size (total assets) is positive and statistically significant (B = 0.038, p < 0.000), demonstrating that larger firms benefit more from liquidity in enhancing firm value. Similarly, the number of employees as a moderating factor shows a significant impact (B = 1.27e-16, p = 0.003), reinforcing the hypothesis that firm size strengthens the relationship between liquidity and firm value. These findings contribute to corporate finance literature by confirming that larger firms have a stronger ability to leverage liquidity for value creation due to better credit access, operational efficiency, and economies of scale. The study provides valuable insights for corporate managers, investors, and policymakers, emphasizing the need for firm-specific liquidity strategies. Future research should explore industry-specific variations and macroeconomic influences to further understand the dynamics of liquidity and firm valuation.