Financial Management Practices and Bank Value of Listed Commercial Banks in Kenya

Abstract

Despite the critical role that commercial banks play in Kenya’s financial system and capital markets, bank value among listed commercial banks at the Nairobi Securities Exchange (NSE) has exhibited uneven performance therefore the study sought to examine the effect of financial management practices on bank value of commercial banks listed in Nairobi Securities Exchange, Kenya. Specifically, the study sought to assess the effect of capital structure management practices, liquidity management practices, and corporate investment practices on the bank value of listed commercial banks in Kenya. Finally, the study sought to assess the moderating effect of inflation on the relationship between financial management practices and bank value among commercial banks in Kenya. The study was guided by trade off theory, Keynesian Liquidity preference theory, net present value theory and market power theory. The study employed a mixed research design. The target population included all the 10 listed commercial banks in Kenya. Since the target population was manageable the study adopted census technique. The study collected secondary data from the annual audited reports of commercial banks published by the Central Bank of Kenya (CBK) from 2019 to 2023. Before data analysis, the study conducted diagnostic tests for linearity, heteroscedasticity, and normality to determine whether the data met the key assumptions required for panel data regression analysis. Data was analyzed using panel data regression. After analysis data was presented using tables and charts and bar graphs. From the findings, the study concluded that there exists a statistically significant and positive relationship between capital structure management practices and liquidity management practices with bank value. In addition, the study concluded that there is no statistically significant relationship between corporate investment practices and the bank value of listed commercial banks in Kenya. Finally, the findings revealed that inflation significantly moderates the relationship between financial management practices and bank value. From the finding the study recommended that commercial banks in Kenya strategically increase the use of retained earnings and equity financing while minimizing overreliance on long-term debt. In addition, the study recommended that banks institutionalize continuous monitoring of liquidity ratios and adopt real-time cash flow forecasting tools to improve both short-term and long-term liquidity planning.