Firm size and Financial Performance: Evidence from Listed Firms in Nairobi Security Exchange – Kenya

Abstract

This study empirically investigates the effect of firm size on firm financial performance among firms listed on the Nairobi Securities Exchange over the period 2012–2023. Using a balanced panel of 468 firm-year observations from 39 firms, the study applies a fixed-effects regression model to control for unobserved, time-invariant firm characteristics that may jointly influence performance and firm growth. The regression results show that firm size has a positive and statistically significant relationship with firm performance indicating that increases in firm scale are associated with substantial improvements in performance within firms over time. In contrast, control variable including firm age exhibits a negative and significant relationship with performance suggesting that older firms may face maturity-related rigidity or declining efficiency. Firm leverage is also negative and statistically significant implying that higher debt exposure marginally reduces performance. Overall, the findings indicate that scaling up is performance-enhancing in this context, but the benefits may be constrained by ageing effects and leverage-related financial risk. The study recommends that NSE-listed firms should pursue well-governed, efficiency-focused growth in size while keeping leverage prudent and renewing strategies to avoid age-related performance decline.