Financial Characteristics and Firm Value of Listed Commercial Banks in Kenya

The banking sector in Kenya serves as the cornerstone of the country's economic development by facilitating credit allocation and financial inclusion. It is significant in ensuring economic growth as well as a sound, efficient, and stable financial system. However, in the past ten years, macro-economic policy shifts, changing interest rates and inflation, and a rising trend in non-performing loans have greatly disrupted traditional banking operations. This changing economic environment has forced stakeholders and investors to analyse how internal financial traits directly impact a bank's overall market worth, or firm value. This study investigated the effect of financial characteristics on the firm value of listed commercial banks in Kenya for the period 2016 to 2025. Specifically, the study evaluated the effects of loan book value, financial leverage, and profitability on firm value. Inflation was used as a moderator, while dividend policy was tested as a mediating channel through which financial strength signals value to investors. The study adopted an explanatory (causal) longitudinal panel research design and adopted the positivist research philosophy. Secondary panel data were derived from the audited financial statements of listed commercial banks in Kenya and published Central Bank of Kenya (CBK) banking sector supervision reports. The study applied panel data models (fixed effects). Ordinary Least Squares regression results revealed that loan book value and ROA have positive significant effects on EVA, indicating that well-managed lending and efficient utilisation of assets enhance bank value. However, financial leverage has no significant effect on EVA. Dividend policy was found not to mediate the relationship between the financial characteristics and EVA. The study further found that inflation significantly and negatively moderates the relationship between loan book value and EVA. The study recommended prudent and productive credit expansion while ensuring effective credit-risk management.