Moderating Effect of Tax on Firms’ Liquidity, Profitability and Share Returns of Agricultural Firms Listed at Nairobi Securities Exchange

The purpose of this research was to explore the moderating role of taxation on liquidity, profitability, and share returns of Agricultural Companies listed on the Nairobi Securities Exchange (NSE), Kenya. This study was underpinned by four theoretical frameworks to a scholarly foundation: Liquid Asset Theory, Agency Theory, Tax Clientele Effect Theory, and Capital Market Theory. It encompassed a complete survey of all seven firms within the agricultural sector of the NSE, covering the period from 2018 to 2022, and utilized secondary data collected through a data capture sheet. Initially, the research identified a significant impact of liquidity on the share returns of these agricultural firms before tax was considered as a moderating variable. It also found a significant influence of profitability on the share returns within the agricultural segment of the NSE. Upon integrating tax as a moderating variable, the research further confirmed a significant impact of liquidity on share returns. Additionally, it revealed a significant negative impact of profitability on the share returns in this sector. The findings indicated that taxation significantly moderates the relationship between liquidity, profitability, and share returns of agricultural firms on the NSE, Kenya, as evidenced by a 12% change in R2 following the inclusion of tax in the model. The outcomes of this study are anticipated to inform investment strategies in the stock market, enhance academic research, and pinpoint areas for future investigation. It is recommended that further research should be carried out on the Financial Indicators of Firms and Share Returns across all sectors of the NSE.