Foreign exchange risk management practices and financial performance of Chinese owned enterprises operating in Kenya
Economic Liberalization has made it possible for investors to continue investing in other foreign countries across the globe. Chinese owned enterprises are some of the companies which have benefitted from the global liberalization. Like in the case of other foreign firms, Chinese owned enterprises operating in Kenya and elsewhere have been formed for purposes of profit making. But recent findings indicate that the firms' profits are to the declines. This possibly is because of inadequate foreign risk management practices. Financial performance is a subjective measure of how well a firm can use assets from its primary mode of business and generate revenues. This term is also used as a general measure of a firm's overall financial health over a given period of time, and also can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation. There are various risks that influence the financial performance of most companies. Every business activity is confronted with many risks and coping with these risks has always been an important managerial function. Chinese owned enterprises operating in Kenya have challenge managing exposure to foreign exchange risk. The objective of this study was to investigate the effect of foreign exchange risk management practices and financial performance of Chinese owned enterprises operating in Kenya. The theories which the study relied on include; the international Fisher effect, interest rate parity theory relative version of purchasing power parity prospect theory, and law of one price. The study adopted the positivism philosophy and employed descriptive research design. Out of the 82 Chinese enterprises operating in Kenya 41 firms were sampled. Stratified sampling technique was used. Primary and secondary data collected using a questionnaire. Multiple regression analysis was used to examine the magnitude of influence of the independent variables on the respective dependent variable. Correlation and descriptive analysis methods were used to determine the direction and general information on both independent and dependent variables. Regressors were estimated agai nst two reggressands, net profit and return on assets. The study found out that management practices under transaction exposure had a positive effect on the financial performance (ROA) of the enterprises. Conversely, economic exposure management practices had a negative influence on performance (both on ROA and Net profit), Also it was noted that the economic exposure variable had a greater negative magnitude to net profit. Firms' strategies on mitigating economic exposure are either inadequate or inappropriate. No relationship was found between translation exposure practices, policy and regulatory requirements and financial performance. Based on the results, the study recommends that transaction exposure management practices should be critically examined; Chinese owned companies should embrace transaction exposure management practices to enhance performance. However it was noted that that different firms use different methods of calculating translation exposure. nevertheless this did not affect the findings since the discrepancy among firms "vas negligible. ln the researcher's insight, the enterprises can better mitigate the economic exposure effect through alternative approaches such as increasing sales volume, adjusting its sales price, altering product strategy, shifting production among plants or selecting low cost production sites. For further research, the study suggests a comparative relook on the foreign risk management practices between locally owned multinationals and there foreign counterpart's practices. Further study is also suggested on effect of foreign risk management policy, probing the effect of passive management and active management approaches on financial performance.