Intracompany Loan and Financial Performance of Manufacturing Firms in Rwanda
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Date
2020
Authors
Omwoyo, Edinah Kwamboka
Abdul, Farida
Ngaba, Dominic
Journal Title
Journal ISSN
Volume Title
Publisher
Stratford Peer Reviewed Journal and Book Publishing
Abstract
The manufacturing sector in Rwanda contributes to less than 5 percent of the GDP (UNECA,
2015). The financial performance of manufacturing companies in Rwanda has been declining over
the years. This might bedue to low intracompany loans, thus formed the justification of the study.
For instance, Cimerwa, the largest cement manufacturing company in the country, made a net loss
of Rwf 7.4 million in 2016, Rwf 5.5 million in 2017 and further Rwf 7.1 million in 2018. The
reviewed empirical literature had mixed results. Some studies revealed that intracompany loans
positively affect financial performance, while other studies showed a negative effect. Based on
this background, the study sought to examine the effect of intracompany loan on financial
performance of the manufacturing firms in Rwanda. The study was anchored on pecking order
theory. The target population was 32 manufacturing firms. . The data was collected from 2015 to
2019. The findings of the study revealed that a positive association existed between intracompany
loans and financial performance. Based on the regression analysis, it was found that intracompany
loans had a positive and significant effect on return on investment (β=0.956415, p=0.001). The
study recommended that intracompany loans need to be increased between a subsidiary and parent
company. The terms and conditions of payment of a given loan between a subsidiary and parent
company need to be made more friendly and promising than a loan taken from other lenders.
Description
A research article published in Journal of Finance and Accounting
Keywords
Intracompany loan, ROI, financial performance, manufacturing, Rwanda
Citation
Omwoyo, E., K., Abdul, F., & Ngaba, D. (2020). Intracompany Loan and Financial Performance of Manufacturing Firms in Rwanda. Journal of Finance and Accounting, 4(4), 54-64