LIQUIDITY RISK AND ANNUAL STOCK RETURNS OF LISTED AGRICULTURAL FIRMS AT THE NAIROBI SECURITIES EXCHANGE, KENYA

The agricultural sector plays a significant role in Kenya’s economy, yet agricultural firms listed on NSE continue to experience fluctuations in annual stock returns. Listed agricultural firms in Kenya (trading on the Nairobi Securities Exchange) show volatile and fluctuating profitability, with average Return on Assets ranging between -7% and 12% from recent years. One potential factor is liquidity risk, which reflects a firm’s ability to meet short-term financial obligations and sustain its operations without incurring excessive financing costs or disposing of assets at unfavorable prices. As at 2026, out of 64 firms listed at NSE, agricultural firms are 7, comprising of 10.9% of all listed firms in the NSE. This study examined the moderating effect of firm size on the relationship between liquidity risk and annual stock returns of listed agricultural firms in Kenya. The study employed a positivist research philosophy and a longitudinal explanatory research design. The target population were 7 agricultural companies listed at the Nairobi Securities Exchange and the study period was 2015-2024. Secondary data was gathered from the financial statements of the firms under study. The results were presented as descriptive, correlation and dynamic panel regression model. From the results, the study found that liquidity risk has a negative and statistically significant relationship on annual stock returns of the listed agricultural firms. Finally, firm size recorded a positive and statistically significant moderating effect on the relationship between liquidity risk and annual stock returns. The study recommended that management of agricultural firms listed at the NSE should strengthen liquidity risk management by maintaining adequate working capital, improving cash flow forecasting, optimizing inventory and receivables management, and diversifying short-term financing sources. Firms should regularly monitor key liquidity indicators and establish robust internal controls to ensure that short-term obligations are met without compromising operational efficiency.