This study investigates the moderating effect
of firm size on the relationship between liquidity and firm value among
companies listed on the Nairobi Securities Exchange (NSE). Liquidity is
essential in ensuring financial stability and market confidence, while firm
size may influence how liquidity impacts firm valuation. The study employs a
longitudinal research design using panel data from 51 NSE-listed firms spanning
15 years (2007–2022). Data were obtained from audited financial statements and
reports, ensuring accuracy and reliability. Liquidity was measured using
short-term liquidity (mean = 0.4722, SD = 0.2659), asset convertibility (mean =
0.1885, SD = 0.0986), and new debt liquidity (mean = 0.3904, SD = 0.2097). Firm
size was operationalized using total assets (log-transformed mean = 16.6046, SD
= 4.5559) and number of employees (log-transformed mean = 2.7847, SD = 1.6473),
while firm value was measured using Tobin’s Q (mean = 1.5686, SD = 0.8152).
Descriptive statistics reveal moderate liquidity levels across firms, with
varying firm sizes influencing liquidity management. The study employs
fixed-effects regression analysis, where the results indicate that firm size
significantly moderates the liquidity-value relationship. The interaction term
between liquidity and firm size (total assets) is positive and statistically
significant (B = 0.038, p < 0.000), demonstrating that larger firms benefit
more from liquidity in enhancing firm value. Similarly, the number of employees
as a moderating factor shows a significant impact (B = 1.27e-16, p = 0.003),
reinforcing the hypothesis that firm size strengthens the relationship between
liquidity and firm value. These findings contribute to corporate finance
literature by confirming that larger firms have a stronger ability to leverage
liquidity for value creation due to better credit access, operational
efficiency, and economies of scale. The study provides valuable insights for
corporate managers, investors, and policymakers, emphasizing the need for
firm-specific liquidity strategies. Future research should explore
industry-specific variations and macroeconomic influences to further understand
the dynamics of liquidity and firm valuation.
