Credit Risk Assessments and Firm Value of Listed Commercial Banks in Kenya

Abstract

Despite the various control measures put in place especially the CBK’s prudential laws to ensure that the performance of commercial banks in Kenya is ensured, most commercial banks have been collapsing in the recent past. It is in this light that the current study sought to ascertain the impact of bank liquidity, capital adequacy, asset quality and earnings on the firm value of listed Commercial banks in Kenya. Descriptive research design was employed on a population sample of eleven publicly listed retail banks. Secondary data was collected from CBK and other public financial reports over the 12-year period from 2009 to 2020. The collected data was analysed using1a multivariate panel regression1model to generate the relevant regression tests. The1study established that the capital adequacy has a marginal positive impact on the firm value while earning ability was found to have a statically insignificant positive effect on firm value among Kenyan commercial bank. The study findings indicated that liquidity was insignificantly and negatively correlated with firm value as asset quality had insignificant positive effect on firm value among Kenyan commercial bank. The study recommends that, managers of listed banks should embrace utilization of internally generated equity capital to ultimately promotes credit risk assessments as they maintain optimal levels of liquidity to maximize firm value and maintain high quality of assets as they sustained levels of earnings that boost output. This paper explained a credit risk rating concept that had not been examined in Kenya before.