ASSESSMENT OF THE RELATIONSHIP BETWEEN RETAINED EARNINGS AND SHAREHOLDER VALUE CREATION: PERSPECTIVES FROM LISTED MANUFACTURING FIRMS IN KENYA
Abstract
Purpose of Study: This study sought to analyze the effect of retained earnings on shareholder value in listed manufacturing firms in Kenya.
Problem Statement: Generating shareholder value remains a fundamental objective within the global corporate sphere, closely linked to corporate profitability. The manufacturing sector in Kenya contributes approximately 18% to the country’s GDP and creates employment to over 2.3 million individuals across both formal and informal sectors. However, these firms consistently struggles to create and maintain shareholder value over the past decade. Despite a reported increase in shareholder wealth on the NSE in 2019, much of this growth was concentrated within a few companies, with East Africa Breweries PLC being the only manufacturing firm among them.
Methodology: The study adopted a positivist philosophy and a causal research design. The target population included 21 listed manufacturing firms on the Nairobi Securities Exchange (NSE). Secondary panel data for the period 2012–2023 was extracted from published financial statements and analyzed using Stata software, employing both descriptive and inferential statistical techniques. Descriptive statistics, Pearson’s correlation, panel regression, multiple regression analysis were employed to analyze the data.
Result: Retained earnings had positive and significant on shareholder value creation (β = 0.229617, p = 0.018 < 0.05), showing that reinvesting internal funds supports shareholder value.
Recommendation: Retained earnings should remain the primary source of funding for listed manufacturing firms, given their strong positive relationship with shareholder value. In addition, firms should adopt dividend policies that balance investor expectations with the need for reinvestment in core operations.
Keywords: Retained Earnings, Shareholder Value Creation, Internal Financing, Capital Structure Decisions, Listed Manufacturing Firms in Kenya.
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