Relationship between the Cost of Retained Earnings and Financial Performance of Selected Firms in NSE, Kenya

 Abstract — The purpose of the study was to determine the relationship between cost of retained earnings on the financial performance of manufacturing firms listed in Nairobi Security Exchange. The study was anchored of signaling and liquidity risk theory. The study adopted descriptive research design. The unit of observation was companies Listed in NSE (NSE). According to NSE there are 64 listed companies. The study purposively selected manufacturing firms that are listed at NSE. According to NSE there are 8 manufacturing firms that are listed at NSE. The researcher collected secondary data from the audited annual financial reports of 8 manufacturing firms listed in NSE. The study used data collection sheet to assist in data collection. Descriptive and inferential analysis was used in data analysis. The study revealed that cost of retained earnings had moderate and significant relationship with financial performance of Manufacturing firms listed at the NSE, Kenya. The study concluded that most companies fell below average in terms of retaining net income among listed manufacturing firms listed in Nairobi security exchange over the period of study (2012-2018). The study recommended that firms need to rely on retained earnings financing in order to overcome the massive related interest expenses payable whenever other sources like debt financing are adopted.