Effect of capital investment on stock returns among selected non-financial listed companies at Nairobi securities exchange, Kenya

Abstract

ABSTRACT Company’s investments are one of the factors that affect the market capitalization mainly because investment decisions are associated with the decisions about the allocation and the use of funds for the short-term and long-term purposes. Capital investment decisions are also irreversible and highly risky, thus a wrong investment decision can lead companies even to financial distress, which may negatively affect the firm’s stock returns. This study therefore sought to determine the relationship between capital investment and stock returns of non- financial firms listed at the Nairobi Securities Exchange. The free cash flow theory, the q theory of investments and the information asymmetry theory were explored as the key theories of the study. The study adopted a correlational research design and the population of this study was made up of 44 non-financial firms listed at the Nairobi Securities Exchange, out of which 8 firms were selected. This study used secondary data which was collected using a data collection sheet for a period of five years from (2011- 2015). To analyze the collected data the study used the multiple linear regression models. Research findings are presented using tables and graphs in form of inferential statistics. The study found that there was a positive relationship between stock returns( dividend per share) and real estate investment trust of the non-financial firms listed in the Nairobi securities exchange ,as evidenced by Pearson value of (r=0.442, Sig. 0.004), a negative relationship between dividend per share and fixed income investment of the non-financial firms listed in the Nairobi securities exchange, as shown by the Pearson value of (r=0.168, Sig. 0.299) and lastly a positive relationship between stock returns and capital expenditure investment of the non-financial firms listed in the Nairobi securities exchange as shown by the Pearson value of (r= -0.338, Sig. 0.013). The study therefore recommended that the management of non-financial firms should focus more on real estate investment trust and capital expenditure since both ensures that the firms have high stock returns, consider restructuring or replacement of fixed income investment for attainment of maximum yield.