Relating Company Size and Financial Performance in Agricultural Firms Listed in the Nairobi Securities Exchange in Kenya

Abstract

Company/firm size is among the many variables that is significant in assessing the profitability of a company. Therefore, this paper seeks to evaluate the effect of company size on the financial performance of listed agricultural companies in Kenya. The theory of economies of scale that links benefits arising from company size, cost management and production volumes was utilized. Secondary data was extracted from the annual reports comprising of financial statement from the period 2003 to 2013 and analyzed using a pooled OLS model. Company size was measured using the total assets (Log of assets) while financial performance was measured by return on assets (ROA), return on equity (ROE) and earnings per share (EPS). The regression results present the goodness of fit for the regression between log total asset and ROA, ROE and EPS as 0.112, 0.113 and 0.074 respectively. The overall model of ROA, ROE and EPS was significant with F statistic of 9.334, 11.096 and 5.901 respectively. The relationship between log total asset and financial performance measures was positive and significant for ROA (b1= 0.033, p value, 0.003) and ROE (b1= 0.049, p value, 0.001) and. EPS (b1= 3.866, p value, 0.018). These results indicate that company size as measured by total assets affects financial performance of agricultural companies listed in NSE positively and significantly. Company size had positive and statistical significance on all the three indicators of the financial performance disclosing that large companies were found to have a competitive advantage over small firms.

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