Asset Tangibility and Financial Performance: Evidence from Firms Listed on East African Community Exchange Markets
Abstract
Financial performance is fundamental to the survival, competitiveness and value creation of listed firms since it reflects the extent to which firms efficiently utilize their financial and operational resources to generate returns for shareholders. Despite their economic importance, the financial performance of listed firms has become increasingly uncertain because corporations operate in a dynamic environment, resulting in limited contribution to commitment policies and economic growth. Therefore, due to consistent reports of poor financial performance of listed firms, this study investigated the effect of asset tangibility on financial performance among listed firms in East African Community exchange markets. The study was informed by positivism philosophy and guided by both explanatory and longitudinal research designs and anchored in resource-based theory. Of the 112 listed firms, 48 met the inclusion criteria, yielding a panel dataset of 480 firm-year observations from 2015-2024. Financial performance was measured by EVA spread and asset tangibility by the ratio of tangible fixed assets to total assets, with firm size and firm age as controls. The fixed-effects model showed that asset tangibility was positively and significantly associated with EVA spread (β = 0.3858, CI [0.3081, 0.4635], p < 0.001). The fixed-effects model is jointly significant (F(3, 429) = 76.27, p < 0.001) and explains 34.78% of the within-firm variation in financial performance, measured as EVA spread. The study therefore suggests that managers can direct capital to well-utilized assets that earn returns above the cost of capital as the most reliable route to enhance EVA spread, and that policymakers may consider measures that improve firms’ access to affordable long-term financing and strengthen the infrastructure that supports the acquisition of productive tangible assets.
Keywords: Financial Performance, Asset Tangibility, East African Community Exchange Markets.
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