The Moderating Effect of Firm Size on the Relationship Between Market Information and Stock Price Volatility at the Nairobi Securities Exchange

Abstract

This study examined the moderating effect of firm size on the relationship between market information and stock price volatility among listed firms at the Nairobi Securities Exchange (NSE), Kenya. Using a longitudinal research design spanning 2018-2023, the study analyzed 120 firm-year observations from the NSE-20 share index constituents. Panel regression analysis with interaction terms revealed that firm size significantly moderated the relationships between different types of market information and stock price volatility. Specifically, firm size moderated the relationship between information flow and stock price volatility (β = 0.0024718, p = 0.040), commodity price information and stock price volatility (β = 0.0000012, p = 0.029), and accounting information and stock price volatility (β = -0.0000452, p = 0.039). The model's explanatory power improved substantially from 8.95% to 34.75% when firm size and interaction terms were included. The findings demonstrate that the effects of market information on stock price volatility are not uniform across firms but depend significantly on firm characteristics, particularly organizational scale. Large firms experience different information processing dynamics compared to smaller firms, with implications for volatility patterns. The study recommends that regulatory bodies implement size-specific disclosure requirements, firms develop information dissemination strategies aligned with their scale, and investors adjust their analytical frameworks to account for differential information effects based on firm size.