Alternative Financing And Financial Performance Of Manufacturing Firms Listed At The Nairobi Securities Exchange Kenya
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Financial performance of listed companies has, in the recent past been declining as characterised by dwindling profitability. Total ROA for the 13 firms under study decreased from 1.33 in 2013 to 0.68 in 2014 and then increased to 1.05 in 2015 before falling again to 1.02 then 0.30 in 2016 and 2017 respectively. Six out of the 13 manufacturing firms listed in the NSE issued profit warnings in the period 2018 to 2019. As such, investors were no longer attracted to shares and corporate bonds listed in the bourse because of the low returns. Additionally, there was a lot of defaults in the corporate bonds in the recent past. This played a major role in the increased adoption of alternative sources of financing by firms. The main study objective was establishing the influence of alternative finance on the financial returns among manufacturing firms listed at the NSE. Specifically, the study sought to determine the impact of operating lease, lines of credit and finance lease on financial returns among listed firms in the manufacturing segment. The research also sought to establish the firm size moderating effect on the relationship between alternative financing and the financial returns of the firms. Key theories used in the study were Modigliani and Miller theorem, Trade Off theory, Pecking Order theory, Liquidity Preference theory and Economies of Scale theory. A descriptive research design was adopted. Secondary data extracted from annual reports and financial statements, was used. The study population was picked through a census of the 13 firms listed under the NSE manufacturing and allied and construction and allied segments. The study utilized the descriptive research design. Descriptive data analysis was used i.e., mean, mode, medium and standard deviation. Inferential statistics were analysed through Pearson’s correlations as well as Panel Regression Model for 13 listed manufacturing firms for the period between the year 2015 and 2019 using Eviews 11. The research results showed there was an insignificant correlation between finance lease, operating lease, credit lines, firm size and the financial returns among the firms. The study applied random panel regression and results showed that 17.29% of the changes in financial outcomes could be explained by alternative financing. The moderation tests indicated a positive significant and moderating effect of firm size on the financial performance of the manufacturing firms. The study concluded that alternative financing improved returns among listed manufacturing firms in Kenya. The research concluded that finance leasing reduced income significantly, while operating leasing and credit line had insignificant effect. Firm size and alternative financing were positively and significantly related with firm income generation capacity. The study revealed that firm size did not have a significant influence on the financial performance. It was recommended that improving financing structures, regulatory policies and guidelines to support the performance of manufacturing firms is vital. The firms also should regularly review their financing options to ensure selected options improve financial performance. Finally manufacturing firms should review their internal debt policies to improve their profit-generation capacity.