“Asset structure, leverage, and value of listed firms: Evidence from Kenya”

Barine Nkonge Habakkuk

AUTHORS Kariuki Samuel Nduati
Kariuki Peter Wang’ombe

Barine Nkonge Habakkuk, Kariuki Samuel Nduati and Kariuki Peter Wang’ombe
(2023). Asset structure, leverage, and value of listed firms: Evidence from Kenya.
ARTICLE INFO
Investment Management and Financial Innovations, 20(1), 184-194.
doi:10.21511/imfi.20(1).2023.16

DOI http://dx.doi.org/10.21511/imfi.20(1).2023.16

RELEASED ON Wednesday, 22 February 2023

RECEIVED ON Tuesday, 27 December 2022

ACCEPTED ON Monday, 13 February 2023

LICENSE This work is licensed under a Creative Commons Attribution 4.0 International
License

JOURNAL "Investment Management and Financial Innovations"

ISSN PRINT 1810-4967

ISSN ONLINE 1812-9358

PUBLISHER LLC “Consulting Publishing Company “Business Perspectives”

FOUNDER LLC “Consulting Publishing Company “Business Perspectives”

NUMBER OF REFERENCES NUMBER OF FIGURES NUMBER OF TABLES

45 0 11

© The author(s) 2023. This publication is an open access article.

businessperspectives.org
Investment Management and Financial Innovations, Volume 20, Issue 1, 2023

Barine Nkonge Habakkuk (Kenya), Kariuki Samuel Nduati (Kenya),

Kariuki Peter Wang’ombe (Kenya)

BUSINESS PERSPECTIVES
Asset structure, leverage,
LLC “СPС “Business Perspectives”
Hryhorii Skovoroda lane, 10,
and value of listed firms:
Sumy, 40022, Ukraine
www.businessperspectives.org
Evidence from Kenya
Abstract
Firm value shows the performance of a firm while reflecting the present value of the
firm’s future cashflows, hence affecting investment decisions. Therefore, this paper ex-
plores the relationship between asset structure, leverage, and firm value of 51 listed
companies between 2010 and 2019 using secondary data collected from audited finan-
cial statements. The study applies panel data regression models and the causal-compar-
ative research design. The quantitative data are analyzed using multiple regression. The
result shows that plant, equipment, property, current, and financial assets influence the
firm value positively. Nonetheless, the quotient of current to total assets was reported
to yield the highest beta coefficient, implying that significant firm value creation is
realized for every additional current asset held, weighed against the quotient of ad-
Received on: 27th of December, 2022
ditional equipment, property, and plant to the value of total assets. Leverage had an
Accepted on: 13th of February, 2023
insignificant influence on the value of firms, implying that no maximization of value is
Published on: 22nd of February, 2023
attainable in manufacturing firms through the astute use of borrowed funds. The study
recommends that finance pundits consider firms’ asset structure and the use of bor-
© Barine Nkonge Habakkuk, Kariuki rowed funds when formulating financial and investment policies. The study enriches
Samuel Nduati, Kariuki Peter
Wang’ombe, 2023 the scholarly world by developing a model for establishing the value of listed firms.

Barine Nkonge Habakkuk, MBA Keywords corporate governance, leverage, asset structure, firm
in Finance, School of Business and value, securities
Economics, University of Embu, Kenya.
(Corresponding author) JEL Classification G32, G41
Kariuki Samuel Nduati, Doctor, School
of Business and Economics, University
of Embu, Kenya. INTRODUCTION
Kariuki Peter Wang’ombe, Doctor,
School of Business and Economics,
University of Embu, Kenya. Firm value is associated with reasonable security prices global-
ly. Gichobi (2019) posits that firm value is a claim from secured and
non-secured creditors from shareholders. According to Prasetyorini
(2013), firm value is determined by the value of securities as measured
using the Tobin’s Q model. Therefore, it is essential for firm managers
to continuously enhance firm value to entice more investors to invest,
since a security’s price determines the shareholders’ interests globally
(Gitagia, 2020).

Listed firms have a total value of 80 trillion US dollars (De-LaCruz

et al., 2019). Despite their economic contribution, they have fallen in
value due to the diminution in share prices and a global decline in
market capitalization (Cheffins, 2015). The publically traded firms in
the United States decreased from more than 7,500 in 1996 to fewer
This is an Open Access article, than 3,700 today (Doidge et al., 2017). In Uganda, the traded shares
distributed under the terms of the declined by 84% from Ush. 256 million to Ush. 41 million, while in
Creative Commons Attribution 4.0
International license, which permits Kenya, investors lost about $70 million when the stock market index
unrestricted re-use, distribution, and dropped from 6161 points to 2474.75 points between 2007 and 2009.
reproduction in any medium, provided
the original work is properly cited. Again, several listed firms, among them, Fashion Retailer Deacon,
Conflict of interest statement: Eveready East Africa, and Uchumi Supermarkets, are facing financial
Author(s) reported no conflict of interest and corporate governance challenges ( NSE, 2019).

184 http://dx.doi.org/10.21511/imfi.20(1).2023.16
 Investment Management and Financial Innovations, Volume 20, Issue 1, 2023

Asset structure is defined as both fixed and non-fixed (current) assets used for financing and as collat-
eral. Nyamasege et al. (2014) demonstrate that asset structure influences firm value at the Nairobi secu-
rities exchange, while Ayuba et al. (2019) find no correlation between capital structure and firm value
in Nigeria. Leverage implies using borrowed capital to finance the firm and industrial practice globally
(Khalid et al., 2014). As a result, firms are twice as likely to employ debts to expand their assets (Issah
and Antwi, 2017).

No previous research has studied all firms listed on the NSE for ten years, from 2010 to 2019. Similarly,
researchers have not utilized panel data analysis in their model in any validated literature reviews.
Therefore, it is paramount to understand how asset structure and leverage affect firm value.

1. LITERATURE REVIEW study focuses on. Correspondingly, Nyamasege et

AND HYPOTHESES al. (2014) explored how asset structure influenc-
es firm value at the NSE using descriptive statis-
This paper is tailored to the agency theorem tics and showed that asset structure affects the
founded on the managerial belief that the split of firm valuation. The current study departs from
ownership and control, a feature of modern or- the above study by using a causal-comparative
ganizations, can lead to managers acting in their research design to determine the relationship be-
self-interest, disregarding the shareholder’s expec- tween the variables under the study.
tations of wealth creation. The agency principal
means that some of the principal decision rights In a comparative study, Ayuba et al. (2019) inves-
over how the firm should be run are transferred tigated the effect of capital structure, firm size, fi-
to the agent, implying that the principal must nancial performance, and firm value in Nigeria,
trust the agent (Moldoveanu & Martin, 2001). On covering six years utilizing an ex-post facto design
the contrary, Omagwa and Muathe (2019) insist and a longitudinal panel consisting of cross-sec-
that since the agents are opportunistic, they are tional data and time series. The study indicat-
likely to misalign their objectives with the prin- ed that return on the employed capital and firm
cipal, resulting in conflicts and affecting a firm’s age were insignificant to a firm’s value. The above
value. The initial examination of agency conflicts studies did not include essential variables of asset
in firms emphasizes the importance of identify- structure, for instance, equipment, property and
ing major areas of dispute and devising a strategy plant, financial assets, and other controlling vari-
for resolving them. Otherwise, even when a firm ables that may influence a firm’s value on a securi-
has all of the required components for success, it ties exchange. These omissions paved the way for
is becoming clear that disputes can stifle the de- the current study.
sired value, especially in the Nairobi securities ex-
change-listed firms. Sanjay and Machali (2017), while researching
leverage and firm value of the Indian Securities
A paradoxical interlink exists between asset Exchange-listed firms from 2001 to 2005, ob-
structure and firm value worldwide. Using mul- served that leverage has a negligible positive or
tiple regression analysis, Saad (2010) studied 126 negative association with return on equity. The
Malaysian firms from 1998 to 2006, finding that studies emphasize the need to leverage debts to in-
interest coverage, turnover ratio, total assets, crease a firm’s revenues. Similarly, Saini (2012), in
and debtor’s turnover ratio all had a positive re- a 7-year study of 7 Indian telecommunication or-
lationship and were statistically significant with ganizations, posits that leverage positively affects
a firm’s profitability. This suggests that investing shareholders’ returns. The study utilized descrip-
in non-current assets positively affects firms’ prof- tive statistics, T-tests, and Correlation analysis.
it margins in Malaysian firms. Furthermore, the Gleason et al. (2000) posit that financial perfor-
study failed to break the total assets into prox- mance and leverage level are negatively correlat-
ies, for instance, property, plant and equipment, ed, which the current research wishes to unearth
current, and financial assets, which the current from the NSE. These contradictions in the find-

http://dx.doi.org/10.21511/imfi.20(1).2023.16 185
Investment Management and Financial Innovations, Volume 20, Issue 1, 2023

ings paved the way for a study on asset structure, tionship between the influence of asset structure
leverage, and the value of firms from 2010 to 2019. and leverage on listed firms.

Reviewed literature on the nexus between asset H01: There is no significant effect of plant, proper-
structure, leverage, and firm value is equally mixed. ty, and equipment on the firm value of firms
In a study on firm value and asset structure in the listed on the NSE.
Indonesian Securities Exchange from 2010–2014,
Machali and Setiadharma (2017), while analyzing H02: There is no significant effect of financial as-
the effect of asset structure and firm value on 34 sets on the firm value of firms listed on the
firms from 2010 to 2014, found a direct connection NSE.
between the value of a firm and asset structure.
Regarding the relationship between firm value H03: There is no significant effect of current assets
and leverage, Dutta et al. (2018) looked at the New on the firm value of firms listed on the NSE.
York securities exchange firms, concluding a neg-
ative association between leverage and a compa- H04: There is no significant effect of leverage on
ny’s value. In their study of the Pakistani cement the firm value of firms listed on the NSE.
industry from 2008 to 2012, Farooq and Masood
(2016) confirmed the practical link between lev- H05: There is no significant effect of firm size on
erage and company worth. The contradictions in the firm value of firms listed on the NSE.
the revised studies paved the way for the current
study. In reference to the aforementioned theoret- H06: There is no significant effect of firm age on
ical and empirical evaluation, firm value is crucial the firm value of firms listed on the NSE.
to shareholders since a firm’s worth, determined
by market pricing for its securities, is a critical fac-
tor in determining whether shareholders’ interests 2. METHOD
will ultimately be sustained.
Causal comparison research design and the ran-
While this paper focuses on asset structure, lev- dom-effect model were employed. The causal-com-
erage, and the value of listed firms at NSE for parative research design was preferable because it
2010–2019, there are theories on listed firms that describes pre-existing problems, provides better
are documented in various literature since list- evidence of causality, and investigates a particular
ed firms are essential in the economic prosperi- issue from the data (Yilmaz, 2013). The analysis
ty of a country globally. Nevertheless, empirical included a census survey of all listed firms. Census
studies on asset structure, leverage, and value of increases effectiveness, as suggested by Ratcliffe et
listed firms at NSE for 2010–2019 are rarely avail- al. (2016). The Tobin Q model was conceptualized
able, especially in all Kenyan publicly listed firms, to calculate the firm value by comparing market
as most of the previously conducted research fo- value to book value.
cuses on some segments (Manufacturing) of the
firms instead of covering all listed firms. This pa- Financial assets, current assets, and plant, equip-
per differs from the previous studies by studying ment, and plant, on the other hand, were meas-
all the listed firms at the NSE between 2010–2019 ured using the logarithm of financial assets, the
using secondary data. Further, some reviewed logarithm of current assets, and the logarithm of
studies on firm value were conducted outside plant, equipment, and plant, respectively.
Kenya, thus justifying the current study. From
the standpoint of reviewed literature and argu- Leverage was indicated by the leverage ratio and
ments therein, the current paper conceptualizes measured using the total debt-to-equity ratio,
that asset structure and leverage influence the whereas the control variables, firm size, and age,
value of listed firms. Similarly, firm size and age were measured by the differential of total sales and
are control variables affecting firm value. As a re- period in years since being listed. The paper fo-
sult, the following hypotheses are developed in cused on all the NSE-listed firms from 2010–2019.
response to the paper’s aim to determine the rela- As of December 31, 2019, there were 64 listed firms.

186 http://dx.doi.org/10.21511/imfi.20(1).2023.16
 Investment Management and Financial Innovations, Volume 20, Issue 1, 2023

Table 1. Measurement of variables

Variables Indicators Measurements
Firm Value Tobin Q The market value of a company/BK company’s value
Financial Assets Log of Financial Assets
Asset Structure Current Assets Log of Current Assets
PPE Log of Property, Plant & Equipment
Leverage Leverage Ratio Debt to Equity ratio
Firm Size Log of Total sales
Control Variables
Firm Age Number of years since listing

However, 12 firms were listed in the Nairobi se- Table 2 shows that data were stationary; hence it
curities exchange after 2010, while one was sus- was suitable for forecasting.
pended. Therefore, fifty-one firms qualified for
the study because they were listed consistently Table 2. Stationarity test results
between 2010 and 2019. This listing enabled bal-
Variable T statistic P-value
anced panel data analysis to be effected. It also en-
PPE –13.1379 0.0040
sured the availability of all the data required. The Financial assets –4.0827 0.013
data were thus collected for all 51 firms from the Current assets –4.980 0.0000
annual financial reports of all NSE and Capital Leverage –8.4229 0.0000
Markets Authority-listed firms. Firm value –10.2625 0.0000

Different study variables were assessed, as indicat- Table 3 indicates a Jarque-Bera ordinal of 2.816
ed in Table 1. and a probability estimate of 0.244. Thus, given
that the P-value was (0.244>0.05), which is greater
The paper purposed to examine whether asset than .05; therefore the study rejects the null hy-
structure leverage affects the value of firms list- pothesis, confirming the normality of the data.
ed on NSE. The research applied Multiple Linear That is, the data were distributed normally.
Regression to test the hypothesis in model 1.
Table 3. Normality test results
Yit β 0 + β1 X 1it + β 2 X 2it +
=
(1) Jarque-Bera statistic P-Value
+ β3 X 3it + β X 4it + ε it , 2.8160 0.2440

where Yit is the firm value, X1 is the plant, property,

and equipment, X2 is the financial assets, X3 is the Table 4 shows a Breusch-Pagan statistic p-value
current assets, X4 is the leverage, β the constant of 0.00, which is less than 0.05, revealing that the
term, and ԑit is the error term. data were homoscedastic, i.e., it had a constant
variance.
Analysis of non-stationary data leads to wrong
forecasting and estimation due to spurious re- Table 4. Heteroscedasticity test:
gressions. The absence of a unit root helps achieve Breusch-Pagan-Godfrey
stationarity (Probability-Value < critical value
F-statistics 42.41 Probability. F(7,2317) 0.00
0.05). The present study utilized panel data; hence,
Obs*R2 264.07 Probability. Chi-Square(7) 0.00
Levin-Lin-Chu unit-root test was applied to test Scaled explained SS 1388.07 Probability. Chi-Square(7) 0.00
for stationarity. In non-stationary data, differenc-
ing is done until stationarity is achieved. Std.
Variable Coefficient t-Statist Probability
Error
Constant 0.004 0.002 0.601 0.552
3. RESULTS Property, Plant,
0.087 0.011 8.316 0.000
and Equip
The paper envisaged determining the relationship Leverage –0.011 0.021 –0.541 0.589
between asset structure, leverage, and firm value Financial Assets 0.000 0.00 1.151 0.250
on firms listed at NSE and indicated the following Current Assets 1.879 0.049 3.023 0.003

results.

http://dx.doi.org/10.21511/imfi.20(1).2023.16 187
Investment Management and Financial Innovations, Volume 20, Issue 1, 2023

Table 5 reveals that the Variance Inflation Factors erage value of property, plant, and equipment as
for the variables are below 10. The tolerance values 0.692, with a maximum value of 0.247, 0.087 as the
(VIF-1) are less than 1. This implies an absence of aminimum, and 0.065 as the SD. As per the study’s
multi-collinearity problem. findings, the proportion of plant equipment and
property to total assets ranged from 0.088 to 0.247,
Table 5. Variance inflation factor test results with an average of 0.07. The mean for leverage val-
ue is 0.017, with a standard deviation of 0.032 and
Variable VIF (VIF)-1
a range of 0.00 to 0.136. Current assets yielded a
Asset structure 1.028 0.972
Firm age 1.069 0.935
mean of 1.583, a SD of 0.943, a minimum of 0.442,
Firm size 1.216 0.822 and a maximum of 4.711. On the other hand, fi-
Leverage 1.137 0.879 nancial assets had a maximum of 15, a minimum
Mean: variance inflation factor test 1.097 of five, and a mean of 8.869. The average value for
an enterprise is 6.42, with a SD of 0.369, a low of
The Durbin-Watson statistic was utilized to test 5.52, and a high of 7.38. Firm age had a mean of
autocorrelation. Its statistic runs from 1.5 to 2.5. 30.42, the SD was 18.20, the maximum value was
The statistical results in Table 6 show Durbin- 70, and the minimum value was 1.00.
Watson statistics of 1.7, meaning there was no au-
tocorrelation problem. Table 8. Data characteristics
Mean Std. Dev Min
Table 6. Autocorrelation test derives Variable Obvs Max
Financial Assets 510 8.869 2.399 5 15
Test Durbin-Watson statistic Current Assets 510 1.583 .943 .442 4.711
Autocorrelation Test 1.7 Leverage 510 .017 .032 0 .136
Property, Plant,
510 .069 .066 .088 .247
and Equipment
Under the Hausman Test, the null hypothesis was Firm Size 510 6.42 .369 5.52 7.38
Firm Age 510 30.42 18.2 1 70
that the chosen random effect model was the most
Firm Value 510 .184 .179 –.187 .777
preferable, a s show n i n Table 7, showing that
the p-value is 0.137.
To verify the ratio of correspondence among the
Table 7. Model specification test results variables, an evaluation was conducted.
Test Probability
Table 9 shows the findings of the analysis. There
Hausman Test 0.137
was a negative correlation of –0.019 between finan-
cial assets and the company’s value, while leverage
The paper aimed to determine the relationship be- and firm value were pragmatic and insignificant at
tween asset structure, leverage, and the firm value 0.732. There was a high pragmatic association be-
of listed firms at NSE and presents the following tween property, plant, equipment, and firm value
results. Table 8 displays data characteristics, mean of 0.211 and between current assets and firm val-
and standard deviation (SD), and listed firms’ ue of 0.254. This infers that leverage, equipment,
maximum and minimum values. The firm value plant, property, and current assets perform a cru-
had a mean of 0.84, 0.180 SD, a minimum of 0.187, cial function in determining the value of a firm
and 0.777 as the maximum. Table 8 shows the av- listed on the NSE.
Table 9. Correlation matrix
Firm Value FA Leverage PPE Current assets Firm age Firm size
Firm value 1
FA –0.019 1
Leverage 0.732 0.331 1
PPE 0.211 –0.088 0.405 1
Current assets 0.254 –0.364 –0.421 –0.269 1
Firm age 0.294 –0.001 –0.311 –0.136 –0.190 1
Firm size 0.753 –0.171 –0.587 0.232 0.162 0.367 1

188 http://dx.doi.org/10.21511/imfi.20(1).2023.16
 Investment Management and Financial Innovations, Volume 20, Issue 1, 2023

PPE is Property, Plant, and Equipment, while FA 0.020 percentage point shift in firm value for every
is Financial Assets. one-percentage point shift in plant and equipment.
Olatunji and Tajudeen (2014), while examining the
The R-squared value of 0.426 demonstrates the profitability of selected Nigerian banks from 2000
statistical significance implying that the asset to 2012, demonstrated a significant correlation be-
structure and leverage explain about 0.426% of tween fixed assets and firms’ profit. The variable
the changes in the company’s value. The positive current assets were estimated to be positively as-
coefficient of 0.040 units shows that financial as- sociated with the firm value such that a unit varia-
sets affect firm value positively. This infers that a tion in the current assets leads to a 0.067 unit var-
single shift in the financial assets results in a 0.040 iation in the firm’s value, meaning that there was
unit change in the firm value. Gamayun (2015), statistical importance between the current assets
who investigated the value of firms in Indonesian and the value of the firm. Chowdhury and Amin
public firms, supported the study findings. He as- (2007) established that firm performance depends
serted that tangible assets directly and remarkably on managing current assets. If a firm mismanages
influence a firm’s value. its assets, it will reduce its profit and may lead to
financial distress.
Leverage had an insignificant coefficient of 0.050,
indicating a unit shift in the leverage outcomes The coefficient of firm size was 0.287, meaning that
in a 0.050 unit variation in the firm’s value. The the connection between the size and company val-
findings indicated that excess debt would lead to ue is positive, implying that increasing the firm
the increased possibility of being delisted since the size improves the firm value by 0.287. The find-
firm would be running on more debt than equi- ing concurs with (Isık et al., 2017), who concluded
ty hence the risk of failure to take care of short- that company size significantly positively affects
term expenses or obligations. The study findings the profitability of the mining sector listed on IDX.
corroborate with Anton (2016) on the influence The coefficient for firm age was –0.005, implying a
of leverage on a company’s progress in Romania, negative relation between the age of a business and
which indicates that leverage positively affects its value. This infers that as the firm ages since list-
firm growth in Romania-listed firms. Kenyanya ing decreases significantly, so does the value of the
and Ombok (2018) contradict this by hold- firm. The analysis by Pittiglio et al. (2014) noted a
ing that leverage negatively affects the firms’ notable negative correlation between the age vari-
performance. able on the sale ratio of manufacturing firms with
a sample of 58,211 firms in India.
Plant, equipment, and property positively affect a
firm’s worth, as shown by a positive coefficient of Table 10 indicates an R2 of 0.426, implying that
0.020 units in the data analysis. This equates to a the independent variables account for about 42.6
Table 10. Goodness of fit of the model
Random-effects GLS Regression Model Stat.
R2: Overall 0.426
Wald chi2 5.490
P-value 0.024

Table 11. Independent variables and dependent variables: Individual level of significance of the variables
Variables Coeffnt Std. Error T-statistics Prob-Value
Financial Assets 0.0406 .0732 0.51 0.252
Leverage 0.0504 .0536 1.69 0.402
Property, Plant &Equipment 0.0204 .0221 –3.05 0.000
Current Assets 0.0673 .0216 2.04 0.021
Firm Size 0.287 0.077 3.71 0.002
Firm Age –0.005 0.001 –4.039 0.001
Constant 0.4730 .0756 6.20 0.002

http://dx.doi.org/10.21511/imfi.20(1).2023.16 189
Investment Management and Financial Innovations, Volume 20, Issue 1, 2023

percent of the company’s value change. In addi- The coefficient of current assets is (0.067, p < 0.05),
tion, the chi-square statistic was 5.49 with a prob- indicating that maintaining other variables con-
ability value of 0.245 > 0.05. The tabulated results stant, a unit rise in the quotient of current assets
showed that the model was significant; hence, fur- to total assets yields a 0.0673 unit increase in the
ther evaluation could not be done since the model value of a firm, therefore, rejecting the hypothesis
was suitable. Again, Tables 10 and 11 show that that current assets do not affect the firm value of
the results were influential. All the variables listed firms. The findings resonate with Yahaya et
maintained their coefficient signs and statisti- al. (2015), who propose a positive influence of cur-
cal remarkably. In addition, the model’s signifi- rent assets on cash, loans, and advances. The coef-
cance was maintained. This demonstrated that ficient for leverage is (0.050, p > 0.05), indicating
the model results were good for estimation. This that leverage insignificantly affects the firm value.
implied that the independent variables affect the This indicates that holding all other variables to
company value of NSE-Listed firms. zero, an increment in leverage variable by a single
unit increases the value of a firm by 0.050 units.
Using the random effect regression model above, Raza (2013), who recorded an inverse connection
the regression equation becomes: between the value of a business and leverage, sup-
ports the findings. This indicates that leverage
Yit =
0.473 + 0.0406 X 1it + 0.050 X 2it + plays a minimal role in enhancing firms’ value.
+0.020 X 3it + 0.067 X 4it + 0.287 X 5it + Therefore, the findings fail to reject the hypothe-
sis that leverage has no influence on a company’s
+90.005 X 6it . value. The coefficient of firm size is (0.28, p <. 05).
This demonstrates that holding other variables to
The results show that the Wald statistic is 5.49, which zero, an increase in firm size variable by 1 unit
is notable at a 5 percent confidence level. This means results in an increase of firm value by 0.28 units.
that asset structure and leverage are important in Sudiyatno et al. (2020) support this in their study
describing the variations in the firm value on the on profitability and value in Indonesian firms. The
NSE-listed firms in the random effects specifica- hypothesis that size has no effect on the value of
tion. The findings in Table 11 indicate that the con- NSE-listed firms is rejected. The coefficient of firm
stant term is 0.473, implying that holding the varia- age is (–0.005, p <. 05). This relation between the
bles under consideration to zero could increase the age and the firm value is negative but not remark-
firm value by 0.473. The plant, property, and equip- able. This shows that by maintaining other varia-
ment coefficient is (.020, p < 0.05). The model indi- bles to zero, an increase in the firm age variable
cated that holding other variables to zero increas- by one unit decreases the value of a firm by -0.005
es the property, plant, and equipment variables by units. Stierwald (2010) supports this. Therefore,
0.020 units. Therefore, plant, property, and equip- the hypothesis that firm age does not influence the
ment have a remarkable ascendancy in business value of firms listed on the NSE is rejected.
value. The present research findings are congruous
with Xu and Xu (2013) on optimal asset allocation.
The hypothesis that equipment, plant, and proper- 4. DISCUSSION
ty have no influence on the value of the listed com-
panies at NSE is thus rejected. The coefficient for In general, the paper sought to establish the rela-
financial assets is (0.040, p > 0.05), indicating that tionship between asset structure and leverage and
financial assets do not significantly affect the firm the firm value of Kenyan firms listed on the NSE.
value. The findings agree with Yahaya et al. (2015), Property, Plants and Equipment, Current Assets,
who suggested a positive impact on financial assets: and Financial Assets were used as asset structure
cash, loans, and advances. Therefore, financial as- proxies in the study.
sets are easily utilized to offset bills during financial
distress and can be used to finance tangible assets The findings indicate that property, plant, and
implying that financial assets enhance firm value. equipment positively impact firm value. This is
Hence, the hypothesis that financial assets do not supported by Mwaniki and Omagwa (2017), who
affect the value of a firm listed at NSE is rejected. investigated asset structure and financial perfor-

190 http://dx.doi.org/10.21511/imfi.20(1).2023.16
 Investment Management and Financial Innovations, Volume 20, Issue 1, 2023

mance: A study of firms listed on Kenya’s Nairobi that leverage negatively affects the firms’ perfor-
Securities Exchange in the commercial and ser- mance. The findings indicate that the relationship
vices sectors discovered a positive relationship be- between firm size and company value is positive,
tween long-term investment and financial perfor- implying that increasing the firm size improves
mance. However, the findings contradict Okwo et the firm value by 0.287. The finding concurs with
al. (2012), who found no significant positive im- Isık et al. (2017), who concluded that company size
pact of fixed asset investment on the operating significantly and positively affects the profitabil-
profit of Nigerian brewery firms. ity of the mining sector listed on IDX. However,
Setiadharma and Machali (2017) indicate that the
Current assets are estimated to be positively asso- firm size has no direct effect on the firm value on
ciated with the firm value. The findings agree with the Indonesian securities exchange. The study in-
Akinleye and Dadepo (2019), who found that the dicates a negative relation between the age of a
current assets ratio positively and predominantly af- business and its value. The analysis by Pittiglio et
fects the ROA of chosen manufacturing companies al. (2014) noted a notable negative correlation be-
in Nigeria. The results show that Financial assets do tween the age variable on the sale ratio of manu-
not significantly affect the firm value. The findings facturing firms with a sample of 58,211 firms in
agree with Yahaya et al. (2015), who suggested a India. However, Ghafoorifard (2014) contradicts
positive impact on financial assets: cash, loans, and this in the study on firm age, size, and age in the
advances. However, Li and Wang (2014) showed that Tehran stock exchange.
some financial assets, such as employee benefits ex-
penses, do not affect the firm value in Hong Kong Even though the paper has laid down the founda-
Listed Information Technology Companies. tion for the relationship between asset structure,
leverage, and firm value in Kenya using second-
The study results show that leverage has a pos- ary data, some data may be prone to errors even
itive but insignificant effect on the firm value. if the financial statements were audited. Therefore,
Wanyonyi (2021) studied financial leverage and further comparative research on the influence of
the value of firms at NSE and found a mixture asset structure, leverage, and value of listed en-
of results with total debts reporting a significant terprises could be done in other countries since
negative relationship between leverage to earn- the present research has been confined to Kenya.
ings per share. Kenyanya and Ombok (2018) Furthermore, the study covered the last ten years,
contradict this in their study on the effect of therefore, future studies could be conducted due
Financial Leverage on the Value-Added Financial to changing dynamics in global economies due to
Performance of Kenyan Listed Firms, holding the COVID-19 pandemic.

CONCLUSION
This paper explored the relationship asset structure and leverage have on the value of firms listed on the
NSE. According to the findings, asset structure influences the firm value positively, specifically equip-
ment, plant, and property. Equally, current assets and firm value are positively and robustly related. Since
a correlation exists between firm value and financial assets, there is certainty on the applicability of the
efficient-market hypothesis, which gives investors space to have all the relevant information in the de-
cision-making process on where to invest. Leverage had an insignificant influence on the value of firms,
implying that no maximization of value is attainable in manufacturing firms through the astute use of
borrowed funds. Firm size and the value of a company were found to be significant while holding all other
variables constant. Firm age was the only predictor of firm value decline, indicating a statistically impres-
sive and negative correspondence between company age and firm value when controlling for other factors

The study recommends that finance pundits consider firms’ asset structure and level of leverage when
formulating financial and investment policies to enhance their value and entice shareholders to contin-
ue investing. Significant firm value creation is realized for every additional current asset held, weighed

http://dx.doi.org/10.21511/imfi.20(1).2023.16 191
Investment Management and Financial Innovations, Volume 20, Issue 1, 2023

against the quotient of additional equipment, property, and plant to the value of total assets. However,
finance managers are advised not to over-invest in current assets for fear of denying other areas the
much-needed funds. Financial managers are advised to be judicious as they opt for debts bearing in
mind the cost of capital and the weight it has on the firm since leverage has an insignificant effect on
the firm value. Due to the insignificance between firm size and value, managers of firms are advised
to be more innovative as they widen their product line by introducing new assets. The results enrich
the scholarly world by coming up with a framework to define the value of listed firms with regard to
the composition of their asset structure. The outcomes of this study suggest that fixed and financial
assets contribute to a higher valuation for a business. Therefore, publicly traded companies must invest
adequately in current assets, even as it is vital for them to increase their operational capacity through
investments in property, plant, and equipment. There is indeed an optimal mix of noncurrent and cur-
rent assets for value maximization. The current results point to the relationship between asset structure,
leverage and firm value, showing the importance of assets and leverage in enhancing firm value.

AUTHOR CONTRIBUTIONS
Conceptualization: Barine Nkonge Habakkuk.
Data curation: Barine Nkonge Habakkuk.
Formal analysis: Barine Nkonge Habakkuk.
Funding acquisition: Barine Nkonge Habakkuk.
Investigation: Barine Nkonge Habakkuk.
Methodology: Barine Nkonge Habakkuk.
Project administration: Barine Nkonge Habakkuk.
Resources: Barine Nkonge Habakkuk.
Software: Barine Nkonge Habakkuk, Kariuki Samuel Nduati, Kariuki Peter Wang’ombe.
Supervision: Kariuki Samuel Nduati, Kariuki Peter Wang’ombe.
Validation: Barine Nkonge Habakkuk, Kariuki Samuel Nduati, Kariuki Peter Wang’ombe.
Visualization: Barine Nkonge Habakkuk, Kariuki Samuel Nduati, Kariuki Peter Wang’ombe.
Writing – original draft: Barine Nkonge Habakkuk.
Writing – review & editing: Barine Nkonge Habakkuk.

REFERENCES
1. Akinleye, G. T., & Dadepo, A. O. Value of Insurance Companies 7. Doidge, C., Karolyi, G. A., & Stulz,
(2019). Assets utilization and in Nigeria. Journal of Finance, R. M. (2017). The US listing gap.
performance of manufacturing Accounting, and Management, Journal of Financial Economics,
firms in Nigeria. International 10(1), 57-74. 123(3), 464-487. https://doi.
Journal of Business and org/10.1016/j.jfineco.2016.12.002
Management, 14(4), 107-115. 4. Cheffins, B. R. (2015). Corporate
governance since the managerial 8. Dutta, S., Mukherjee, T., & Sen,
https://doi.org/10.5539/ijbm.
capitalism era. Business History S. (2018). Impact of Leverage
v14n4p107
Review, 89(4), 717-744. https://doi. on Firm Value: Evidence
2. Anton, S. G. (2016). The impact org/10.1017/S0007680515000690 from Some Nairobi Securities
of leverage on firm growth. Exchange Listed Companies. The
Empirical evidence from 5. Chowdhury, A., & Amin, BESC Journal of Commerce and
Romanian listed firms. Review M. (2007). Working capital Management, 4, 42-52.
of economic and Business Studies, management practised in
Pharmaceutical companies in 9. Farooq, M., & Masood, A. (2016).
9(2), 147-158. Retrieved from
Dhaka stock. Impact of Leverage on Value of
https://ideas.repec.org/a/aic/
Firms: Evidence from Cement
revebs/y2016j18antons.html
6. De-LaCruz, A., Medina, A., & Sector of Pakistan. Research
3. Ayuba, H., Bambale, A., Ibrahim, Tang, Y. (2019). Owners of the Journal of Finance and Accounting,
M., & Sulaiman, S. (2019). Effects World have Listed Companies. 7(9), 73-77. Retrieved from
of Financial Performance, Capital Paris: OECD Capital Market https://papers.ssrn.com/sol3/pa-
Structure and Firm Size on Firms’ Series. pers.cfm?abstract_id=2910682

192 http://dx.doi.org/10.21511/imfi.20(1).2023.16
 Investment Management and Financial Innovations, Volume 20, Issue 1, 2023

10. Gamayuni, R. R. (2015). The 18. Kenyanya, P. N., & Ombok, B. of financial performance in
effect of the intangible asset, O. (2018). Effect of Financial determining the firm value. In 5th
financial performance, and Leverage on Value-Added Annual International Conference
financial policies on the firm Financial Performance of Kenyan on Accounting Research (AICAR
value. International Journal of Listed Firms. IOSR Journal of 2018) (pp. 66-70). Atlantis Press.
Scientific and Technology Research, Business and Management, 20(6),
27. Mwaniki, G., & Omagwa, J. (2017).
4(1), 202-212. http://dx.doi. 51-57. Retrieved from https://
Asset Structure and Financial
org/10.5296/ajfa.v12i1.16655 seahipaj.org/journals-ci/mar-2019/
Performance: A Case of Firms
IJIFER/full/IJIFER-M-2-2019.pdf
11. Ghafoorifard, M., Sheykh, B., Quoted Under Commercial and
Shakibaee, M., & Joshaghan, N. S. 19. Khalid, S., Ali, A., Baloch, M. Services Sector at the Nairobi
(2014). Assessing the relationship Q., & Ali, N. (2014). Analysis Securities Exchange, Kenya.
between firm size, age, and of the impact of leverage on Research Journal of Finance
financial performance in listed various measures of corporate and Accounting, 8(4), 687, 699.
companies on Tehran Stock performance using the Arellano Retrieved from http://business.
Exchange. International Journal and Bond dynamic panel data ku.ac.ke/images/stories/research/
of Scientific Management and estimation technique. Abasyn Asset%20Structure%20and%20
Development, 2(11), 631-635. Journal of Social Sciences, 7(1), Financial%20Perfoarmance-%20
1-10. Gladys%20Mwaniki%20and%20
12. Gharaibeh, A. M. O., & Qader,
%20Job%20Omagwa%20PhD.pdf
A. A. A. A. (2017). Factors 20. Lestari, S. A., & Armayah, M.
influencing firm value as (2016). Profitability and company 28. Nyamasege, D., Okibo, W. B.,
measured by Tobin’s Q: Empirical value: an empirical study of Nyang’au, A. S., Obasi Sang’ania, P.,
evidence from the Saudi Stock manufacturing companies in Omosa, H., & Momanyi, C. (2014).
Exchange. International Journal Indonesia from 2009 to 2014. Effect of Asset Structure on Value of
of Applied Business and Economic Information Management and a Firm: a case of companies listed
Research, 15(6), 333-358. Business Review, 8(3), 6-10. https:// in the Nairobi Securities Exchange.
13. Gichobi, J. N. (2019). Effect of doi.org/10.22610/imbr.v8i3.1326 29. Okwo, I. M., Okelue, U. D., &
Financial Soundness on Firm 21. Li, H., & Wang, W. (2014) Impact Nweze, A. U. (2012). Investment
Value of Listed Commercial Banks of Intangible Assets on Profitability in fixed assets and firm
in Kenya (Doctoral dissertation). of Hong Kong Listed Information profitability: Evidence from
KCA University. Technology Companies. Hong the Nigerian brewery industry.
Kong: Macrothink Institute. European Journal of Business
14. Gitagia, F. K. (2020). Financial
and Management, 4(20), 10-17.
management decisions and firm 22. Lonkani, R. (2018). Firm value. In Retrieved from https://www.iiste.
value of selected firms listed at P. S. Hoffmann (Ed.), Firm value: org/Journals/index.php/EJBM/
Nairobi Securities Exchange, Kenya Theory and empirical evidence. article/viewFile/3595/3644
(Doctoral dissertation, Ph.D. London: Intech Open.
Thesis). Kenyatta University, 30. Olatunji, T. E., & Tajudeen, A. A.
Nairobi, Kenya. 23. Machali, M., & Setiadharma, (2014). Investment in Fixed Assets
S. (2017). The effect of assets and Firm Profitability: Empirical
15. Gleason, K. C., Mathur, L. structure and firm size on firm Evidence from the Nigerian
K., & Mathur, I. (2000). The value with capital structure as Banking Sector. Asian Journal of
interrelationship between intervening variables. Journal Social Sciences and Management
culture, capital structure, and of Business and Financial Studies, 1. Retrieved from https://
performance: evidence from Affairs, 6(4), 2-5. http://dx.doi. ideas.repec.org/a/aoj/ajssms/
European retailers. Journal of org/10.4172/2167-0234.1000298 v1y2014i3p78-82id442.html
Business Research, 50(2), 185-191.
https://doi.org/10.1016/S0148- 24. Mahmoudi, S. (2014). The Effect 31. Omagwa, J., & Muathe, S.
2963(99)00031-4 of Leverage on Cement Industry (2019). Corporate Governance,
Profitability. Reef Resources Financial Performance and Firm
16. Isık, O., Aydın Unal, E., & Unal,
Assessment and Management Value: Empirical Evidence from
Y. (2017). The effect of firm size
Technical Paper, 40(1), 673- Commercial Banks in Kenya.
on profitability: Evidence from
676. https://www.scirp.org/ International Journal of Finance &
Turkish Manufacturing Sector.
(S(351jmbntvnsjt1aadkozje))/ Banking Studies, 8(4), 41-48.
Pressacademia, 6(4), 301-308.
reference/referencespapers.
https://doi.org/10.17261/pressaca- 32. Pittiglio, R., Bruni, S., & Reganati,
aspx?referenceid=3164245
demia.2017.762 F. (2014). Heterogeneity in firm
25. Moldoveanu, M., & Martin, R. performance during an economic
17. Issah, M., & Antwi, S. (2017).
(2001). Agency theory and the crisis. Business, Management and
Role of macroeconomic variables
design of efficient governance Economics Engineering, 12(1), 1-14.
on firms’ performance: Evidence
mechanisms. Joint Committee on
from the U.K. Cogent Economics 33. Prasetyorini, B. F. (2013).
Corporate Governance, 3(5), 430.
& Finance, 5(1), 1405581. https:// Pengaruh ukuran perusahaan,
doi.org/10.1080/23322039.2017.1 26. Murni, S., Sabijono, H., & Tulung, leverage, price earning ratio
405581 J. (2019, February). The role dan profitabilitas terhadap

http://dx.doi.org/10.21511/imfi.20(1).2023.16 193
Investment Management and Financial Innovations, Volume 20, Issue 1, 2023

nilai perusahaan. Jurnal Ilmu 38. Saini, R. (2012). Impact of 7(11), 769-778. http://dx.doi.
Manajemen, 1(1), 183-196. leverage on shareholders returns org/10.13106/jafeb.2020.vol7.
Retrieved from https://jurnalma- and market capitalization: no11.769
hasiswa.unesa.ac.id/index.php/ empirical evidence of
42. Wanyoyi, B. C. B. (2021).
jim/article/viewFile/1505/1136 telecommunication sector Financial leverage and firm value
34. Ratcliffe, M., Burd, C., Holder, companies, India. International at Nairobi securities exchange
K., & Fields, A. (2016). Defining Journal of Research in I.T., (Unpublished paper). School of
rural at the US Census Bureau. Management, and Engineering, Business, University of Nairobi.
American Community Survey and 2(12). https://doi.org/10.26710/
jafee.v4i1.356 43. Xu, Z. S., & Xu, N. Z. (2013). The
Geography Brief, 1(8).
research of the optimal allocation
35. Raza, M. W. (2013). Effect of 39. Setiadharma, S., & Machali, of assets structure and business
leverage on firm performance. M. (2017). The effect of asset performance. Research Journal
Empirical evidence from Karachi structure and firm size on firm of Economics, Business, and ICT,
Stock. Retrieved from https:// value with capital structure as 8(1).
www.researchgate.net/publica- intervening variable. Journal of
Business & Financial Affairs, 6(4), 44. Yahaya, K. A., Fagbemi, T. O., &
tion/326693350
1-5. https://doi.org/10.4172/2167- Oyeniyi, K. K. (2015). Effect of
36. Reyhani, A. G. (2012). International Financial Reporting
0234.1000298
Investigating the effect of asset Standards on the Financial
structure on the performance of 40. Stierwald, A. (2010). Statements of Nigerian Banks.
accepted companies of the Tehran Determinants of firm profitability- Journal of Agricultural Economics,
Stock Exchange (TSE). Journal the effect of productivity and its Environment, and Social Sciences,
of Basic and Applied Scientific persistence. Melbourne Institute 1(1), 18-29.
Research, 2(2), 1086-1090 for Applied Economic and Social
45. Yilmaz, K. (2013). Comparison
Research. Retrieved from https:// of quantitative and qualitative
37. Saad, N. M. (2010). Corporate
governance compliance and the journals.sagepub.com/doi/ research traditions:
effects on capital structure in full/10.1177/09721509211046336 Epistemological, theoretical,
Malaysia. International Journal 41. Sudiyatno, B., Puspitasari, E., and methodological differences.
of Economics and Finance, 2(1), Suwarti, T., & Asyif, M. M. (2020). European Journal of Education,
105-114. Retrieved from https:// Determinants of firm value and 48(2), 311-325. https://doi.
pdfs.semanticscholar.org/4261/ profitability: Evidence from org/10.1111/ejed.12014
f9915aaedb3e4d00cadd- Indonesia. The Journal of Asian
b030a4c56baaf371.pdf Finance, Economics and Business,

194 http://dx.doi.org/10.21511/imfi.20(1).2023.16