RETAINED EARNINGS AND PROFITABILITY OF MANUFACTURING FIRMS LISTED AT NAIROBI SECURITIES EXCHANGE

Abstract

This study sought to assess the influence of retained earnings on profitability of manufacturing firms listed at the Nairobi Securities Exchange. The study was guided by the following specific objective: finding out the influence of retained earnings on profitability of manufacturing firms listed at the Nairobi Securities Exchange. The study was guided by Pecking Order Theory. The study adopted descriptive research design. The study targeted 8 listed manufacturing firms at the NSE. The sample size was 8 listed manufacturing firms listed at the Nairobi Securities Exchange. Secondary data was collected for duration of 5 years (January 2016 to December 2020) annually. Descriptive and inferential statistics were analyzed using STATA 15. Descriptive statistics entailed central tendency (means) and dispersion (standard deviation). Inferential statistics such as regression and correlation analyses were also used to determine both the nature and the strength of the relationship between the dependent and independent variables. Analyzed data was presented using tables and graphs. The findings revealed that, retained earnings have significant positive effect on profitability of manufacturing firms listed at the Nairobi Securities Exchange. This implied that increase in the utilization of retained earnings in the capital structure would results to significant increase in profitability. The study recommended that it would be prudent to recommend that manufacturing firms listed at the Nairobi Securities Exchange adopt the use of retained earnings as a source of finance in most of their operations as compared to other sources of funds so as to maintain the positive relationship between retained earnings and financial performance. The study further recommended that the manufacturing firms listed at the Nairobi Securities Exchange should embrace retained earnings as sources of finance for new projects in emerging markets. Key words: Retained Earnings, Capital Structure, Profitability CITATION : Mulekano, M. A., & Miroga, J. (2023). Retained earnings and profitability of manufacturing firms listed at Nairobi Securities Exchange. The Strategic Journal of Business & Change Management, 10 (4), 163 – 173. http://dx.doi.org/10.61426/sjbcm.v10i4.2741