Growth Opportunities and Financial Performance of Firms Listed at the Nairobi Securities Exchange, Kenya

Financial stability is a fundamental enabler of sustained operational performance for every corporate entity. A firm’s ability to remain financially stable depends on how well it anticipates, monitors and integrates growth opportunities into its financial planning and decision-making processes. Existing literature provides mixed findings on the direct influence of growth opportunities. Thus, the general objective was to establish the influence of growth opportunities on financial stability. This study was anchored on real options theory. This study employed positivism philosophy and both descriptive and causal research design were adopted as a framework to guide the study. The study employed a census approach that included all the nine listed manufacturing firms at the NSE for a period of fifteen years. This yielded a balanced panel data set comprising of 135 firm-year observations. Secondary data were obtained from the firms’ audited annual financial reports using a structured data collection sheet. Data was analysed using descriptive statistics which explain the features of study variables and inferential statistics which were used to test hypothesis. Correlation analysis was used to determine the strength and direction of the relationships among the variables. Prior to model estimation diagnostic tests were performed to establish data suitability and model reliability. Panel regression model was employed to estimate direct effect allowing for a comprehensive analysis of relationships while controlling for unobserved heterogeneity across entities and over time. Hypothesis was tested using t-test at 5% significance level using STATA version 18. The findings signify that growth opportunities positively affected financial stability (β = 0.4476, p = 0.000). Thus, firms with more growth opportunities were more likely to have higher levels of financial stability. The few manufacturing firms could result to small sample bias in the estimation. Sampled manufacturing firms for studies in developed markets span for over decades. Thus, comparing results in this study with other related studies may not be feasible. The research is one of the first studies to investigate direct influence of growth opportunities on financial stability of manufacturing firms listed at the NSE. Findings add to literature on investment and portfolio management and provide useful insights for researchers and practitioners interested in emerging capital markets. Keywords: Growth Opportunities, Financial Stability, Manufacturing Firms and Nairobi Securities Exchange.