Firm Characteristics and Working Capital Financing Adopted by Non-Financial Firms Listed at Nairobi Securities Exchange, Kenya

Abstract

The working capital requirement is critical to any organization. However, the working capital of numerous non-financial firms listed at NSE has been negative. Some scholars have established that firm characteristics can affect the working capital requirements. Thus, the study examined the influence of firm characteristics on working capital financing by explicitly examining the influence of firm size, asset tangibility, profitability and leverage on working capital financing. Five theories, namely, Baumol design, pecking order theory, trade-off concept, economies of scale theory and profit maximization theory, informed the study. The study employed an explanatory research design. The target population were all the 45 non-financial firms listed at NSE. The study carried out a census of all the firms. The research collected secondary panel data. The study period was between 2015 and 2019. The data was presented in Table and graphs. The results from the model fitness showed that firm size (log of total assets), asset tangibility, profitability (ROA) and leverage explain 64.70% of the variations in the working capital financing of the non-financial firms. The correlation results showed that firm size measured through the log of total assets, asset tangibility and profitability were positively associated with working capital financing. In contrast, leverage was found to be negatively associated with working capital financing. The regression results showed that firm size, asset tangibility and profitability have a significant positive effect on working capital financing. However, the regression results revealed that leverage has a significant negative effect on working capital financing. Therefore, the study recommended that the non-financial firms listed at NSE look for strategies that increase their assets. Enormous firms are expected to be more financially stable with more investments, thus reducing borrowing. In addition, it is recommended that firms should look for ways to increase asset tangibility. The firms can invest in more assets such as plant and equipment, buildings, computer equipment, software, furniture, land, machinery, and vehicles. This could be the foundation for increasing the revenue base in the long run. Moreover, it is recommended that the non-financial firms listed at NSE look for strategies to reduce the leverage levels. High leverage means increasing the borrowing, thus reducing the working capital. External funding of the operations, such as debts, should be used if all the other internal financing options are exhausted. Areas for further research was that since the study was only done in non-financial firms, another study can be conducted with the financial firms. This is key for the results comparison of the current study and those from future studies. The conducting of another study will further identify more research gaps for future studies.