| dc.description.abstract | Listed firms at the Nairobi Securities Exchange (NSE) have encountered challenges regarding
share liquidity, impacting market efficiency and the attractiveness of the NSE to investors. This
study focuses on the effect of firm-specific factors on share liquidity, specifically examining
the NSE 20 share index constituent companies. The factors considered include company size,
financial liquidity, financial performance, and ownership structure. The study draws upon
market depth theory, arbitrage pricing theory, and efficient market hypothesis and adopts a
positivism philosophy with a longitudinal research design. The target population consists of
firms listed in the NSE 20 share index from 2014 to 2021. Secondary data from company
reports and NSE historical data were collected. The study employed preliminary analysis,
descriptive statistics, and inferential analysis including correlation analysis and a random
effects model. The study found that company size had no statistically significant effect on share
liquidity in Kenya (β = 0.012, p = 0.53 for contemporaneous effects, and β = -0.002, p = 0.98
for lagged effects). However, financial leverage had a statistically significant effect on share
liquidity, as indicated by the contemporaneous effects (β = 0.13, p = 0.005) and lagged effects
(β = 0.155, p = 0.01). Company financial liquidity did not have a statistically significant effect
on share liquidity in contemporaneous effects (β = 0.07, p = 0.245), but it showed a positive
and significant effect after lagging the values by one year (β = 0.155, p = 0.001). The
contemporaneous effects of financial performance were found to be negative and insignificant
(β = -0.001, p-value = 0.249). However, by analyzing the lagged effects, a significant and
positive relationship between EPS and share liquidity was identified, with a coefficient of 0.006
and a corresponding p-value of 0.02, which is below the conventional significance level of
0.05. The study concludes that financial leverage, company liquidity, and financial
performance have a positive impact on the share liquidity of firms listed at NSE. However, the
effects of these variables are observed with a one-year lag. The study recommends
policymakers and regulators avoid assuming that larger companies are more liquid, and instead
focus on implementing measures to promote liquidity, financial leverage, and good financial
performance in both large and small firms. The study recommends further investigations into
the effect of firm-specific factors on share liquidity in different market conditions. | en_US |
