Financial Risk Hedging Practices and Firm Value of Non-Financial Firms Listed at Nairobi Securities Exchange

Abstract

This study sought to examine the effect of financial risk hedging practices on firm value of listed Non-financial firms in Kenya. The business environment has become very volatile as firms sell their products internationally.  Due to dropped earning, share prices of firms have dropped significantly as a result of financial issues faced thereby risking the wealth of their investors.  Companies in the Non-financial sector have had to restructure their debt due to financial difficulties they are facing. These financial difficulties are because of the risks involved in carrying out their businesses. The study was guided by the following objectives: To assess the effect of credit risk hedging practice, market risk hedging practice, liquidity risk hedging practice and the moderating effect of firm size on firm's value of listed Non-financial firms in Kenya. The study's target population was the listed Non-financial firms.  Secondary data was extracted from published annual reports of these firms for the last five years 2015-2019 and primary data gathered using questionnaires administered to the CFOs to establish strategies used by the firms. Both descriptive and inferential statistics were used and findings be presented using tables accompanied with the respective explanations. The study concludes that market risk hedging practice has a positive and significant effect on the firm value of listed Non-financial firms in Kenya. Additionally, the study concludes that credit risk hedging practice has a positive and significant effect on the firm value of listed Non-financial firms in Kenya.Further, the study concludes that liquidity risk hedging practice has a positive and significant effect on the firm value of listed Non-financial firms in Kenya.The study also concludes that financial risk hedging practice has a positive and significant effect on the firm value of listed Non-financial firms in Kenya. From the results, this study recommends that the management of listed non-financial firms should formulate and implement better strategies for making sure marketplace evaluation and decrease marketplace associated risks. Further, the management of listed non-financial firms should formulate and implement better strategies for preventing risk related to credit extended to customers. This can be ensured through taking insurance cover.