Financial Risk, Firm Size and Financial Distress: Turbulent Times for Firms Listed at the Nairobi Securities Exchange, Kenya


  • Elias Walela Faculty of Business, Computer Science and Communication studies, St Paul’s University, Kenya
  • Job Omagwa School of Business, Department of Accounting, Kenyatta University, Kenya
  • Stephen Muathe School of Business, Department of Accounting, Kenyatta University



In Kenya, at least 6 listed firms became insolvent and got into liquidation over a period of 10 years (2009-2018) leading to loss of income, unemployment and other negative outcomes. Hence, the financial stability of the existing listed firms should be examined closely since the firms are expected to be stable at any point in time. Firm Size has been observed to moderate the relationship between various variables and financial distress of firms though there is little empirical evidence in developing economies particularly for firms that are listed at the Nairobi Securities Exchange in Kenya. Hence an empirical issue that remains is to determine what moderating effect firm size has on the relationship between financial risk and financial distress of the listed firms. The general objective was to investigate the moderating effect of firm size on the relationship between financial risk and financial distress of firms listed at Nairobi Securities Exchange, Kenya for the period 2009-2018. This study was based on Wreckers theory of financial distress, Trade off theory, Distress theory, Early Bankruptcy theory and the Altman’s Z-Score Model for financial distress. The study adopted positivism research philosophy and explanatory and descriptive research designs. The targeted population entailed all 66 firms listed at the Nairobi Securities Exchange, Kenya as at 2018. Time Series Cross-Sectional secondary data was analyzed. The following diagnostic tests were carried out before delving into data analysis: Tests for Multicollinearity, Outliers, Heteroscedasticity, Autocorrelation, Linearity, Goodness of Fit, Stationarity and Model Specification. Data analysis was done using descriptive statistics and inferential statistics using Binary Logistic regression model. The findings indicate that Firm size indeed moderates the relationship between financial risk and financial distress of firms listed at the NSE, Kenya at 5% significance levels. Optimal firm sizes should be set up for listed firms to manage financial distress.


Firm Size, Financial Risk, Financial Distress, Bankruptcy, Kenya


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How to Cite

Walela, E., Omagwa, J., & Muathe, S. (2022). Financial Risk, Firm Size and Financial Distress: Turbulent Times for Firms Listed at the Nairobi Securities Exchange, Kenya. Advanced Journal of Social Science, 10(1), 88–102.