Financing Structure and Financial Performance of Selected Supermarkets in Nairobi City County, Kenya
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Date
2022
Authors
Too, Chepngeno Maureen
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Supermarkets in Kenya form significant component of retail sub-sector. For them to survive in the wave of increasing globalization and increasing competition, they have to expand their networks and offer a wide range of products, which requires a lot of finance . Supermarkets in Kenya have been performing poorly with some of them closing down completely and others reducing the number of branches. For instance, the return on assets in large-sized supermarkets decreased from 0.1418 to 0.1390 between 2016 and 2017, and from 0.1473 in 2018 to 0.1446 in 2019. It is therefore essential to understand how use of various sources of finance, including internal sources, debt financing and equity financing, affect financial performance. Moreover, the study assessed the influence of financing structure on selected supermarkets’ financial performance within Nairobi County. Specifically, this study assessed influence of equity financing, Short Term Debt, Long Term Debt as well as Retained Earnings on selected supermarkets’ financial performance within Nairobi City County. Additionally, the researcher employed Trade off theory, Pecking order theory and also Modigliani and Miller Theory. Explanatory research approach was deployed in this research. Study population was 88 large and medium supermarkets within Nairobi County. Additionally, purposive sampling was deployed to choose 9 large-sized supermarkets in Nairobi City County with 150 and above employees. Therefore, this research was conducted among large supermarkets that have been operating for at least five years (2016-2020). Secondary data was obtained using data collection checklist. The study employed inferential as well as descriptive statistics to analyze data and STATA version 14 was deployed tocarry out all statistical analysis. Moreover, descriptive statistics incorporated frequency distributions,variances, percentages, mean and also standard deviation. Moreover, regression analysis was used to carry out inferential statistics. Moreover, the findings were presented infigures (line graphs) as well as tables. The study found that equity financing, measured using DTE ratio, have significant influence on supermarkets’ performance (ROA) within Nairobi City County. Moreover, STD measured in terms of Ratio of STD to total assets have significant negative effect on supermarkets’ financial performance (ROA) in Nairobi City County. In addition, long term debt measured using Ratio of LTD to total assets has significant positive influence on supermarkets’ financial performance (ROA) in Nairobi City County. Moreover, retained earnings measured in terms of Ratio of RE to net income have significant and adverse effect on supermarkets’ performance (ROA) within Nairobi City County. The study recommends that supermarkets within Nairobi City County should use equity financing to finance their operations since equity owners are able to continuously monitor and exert influence on managerial decisions via the board of directors hence ensuring efficient allocation of resources. The study also recommends that avoid getting STD since in an environment of partial contracts STD gives the lender the right of control as firm’s capability to overturn debt may perhaps be conditioned on adequate performance and financial ratios. The management should use LTD to finance different business investments with longer periods of paying back as it is normally less disposed to short term shocks since it is safeguarded by formulated contractual conditions.
Description
A Research Project Submitted to School of Business in Partial Fulfilment for the Award of Degree of Master of Business Administration (Finance) of Kenyatta University April 2022
Keywords
Financing Structure of Supermarkets, Financial Performance of Supermarkets, Structure and Performance of Selected Supermarkets, Supermarkets in Nairobi City County