Financial Risk Management and Financial Performance of Small-Scale Tea Factories in Kericho Tea Zone, Kenya

Abstract

The study looks at the financial performance of Small Scale Tea Factories in Kericho and Bomet Counties. There is a general attribute that failure to pay farmer expected bonus has been due to general mismanagement resulting in financial risk management which can be due to high cost of production and long and inefficient supply chain. This raises concern on financial risk management by the Factories. The purpose of this study was to investigate the effects of financial risk management on performance of Small Scale Tea Factories in Kericho and Bomet Counties. The specific objectives were to establish the effects of credit risk management, liquidity risk management and market risk management on financial performance of Small Scale Tea Factories in Kericho and Bomet Counties. Descriptive research design was utilized in this study while 80 Factory managers and Accountants were target population in the Small Scale Tea Factories operating in Kericho and Bomet Counties. The sample size used were 60 respondents in the 20 Tea Factories whom were knowledgeable of the issues and financial risk affecting the Factories. The researcher used purposive random sampling technique to select the respondent. Quantitative data was gathered using a self-administered survey questionnaire which was given to the respondents by drop and pick later method. Secondary data was also used for the dependent variable. The study covered a five-year period of performance from 2011 to 2015.The researcher pretested the questionnaire to determine its reliability and the validity. Quantitative data collected was analyzed using descriptive statistics method which involved the use of mean, mode, median and standard deviation. Inferential statistics was also utilized which adopted multiple regression model. The regression equation measured the four hypotheses where the model provided data on whether the variable was significant or not significant. The statistical package for social sciences (SPSS) version 2.1 was used to aid in data analysis. The study findings were presented on tables and figures. The study concluded that liquidity risk management and credit risk management are not significant to the performance of the Factories while Market risk management is significant and reliably predicts the financial performance of the Small Scale Factories. The study therefore recommends that the Small Scale Tea Factories should effectively involve financial analyst in risk management process so as to evade unnecessary risk in finance which improves the financial performance. Liquidity and Market risk management techniques should be strictly employed as it is found to influence the performance. Training and key performance indicators should be considered as the main key operators of managing risk in the Factories.