Investment Allowances and Financial Performance of Energy and Petroleum Companies Listed at the Nairobi Securities Exchange in Kenya

Authors

  • Reuben Peter Mwita
    School of Business and Economics, Moi University, Kenya
  • Dr. Neddy Soi
    School of Business and Economics, Moi University, Kenya
  • Dr. Diane Uyoga
    School of Business and Economics, Moi University, Kenya

Abstract

Purpose: This study examined the effect of investment allowances on the financial performance of energy and petroleum companies selected for a Nairobi Securities Exchange sector study in Kenya.


Material/methods: The study was anchored on Neoclassical Investment Theory and adopted an explanatory longitudinal design. A balanced panel of four firms observed over 2006–2025 yielded 80 firm-year observations. Secondary data from annual reports, audited financial statements and tax-related publications were analysed using descriptive statistics, Pearson correlations and fixed-effects regression.


Findings: Investment allowances showed a negative and statistically significant association with financial performance in the reported fixed-effects model (b = −0.328, p = .003). The within-firm R² was .1179, indicating that the model explained 11.79% of the within-firm variation in financial performance.


Conclusion: The findings indicate an adverse contemporaneous association rather than evidence that investment allowances themselves reduce financial performance. Large capital projects may generate returns after the year in which an allowance is recorded, but this timing explanation was not tested.


Value: The study provides firm-level panel evidence on investment allowances and financial performance in Kenya’s energy and petroleum sector. It informs the assessment of qualifying investments using expected cash flows and long-run returns, while highlighting the need for further analysis of lagged relationships and verification of variable construction and scaling.