Profitability, Leverage, Efficiency and Financial Distress in Commercial and Manufacturing State Corporations in Kenya
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Date
2023
Authors
Kibe, Peter Njoroge
Wamugo, Lucy
Gerald, Atheru
Journal Title
Journal ISSN
Volume Title
Publisher
IPRJB
Abstract
Purpose: The major goal was to investigate effect of
profitability, leverage, and efficiency on financial distress in
Kenya's State Corporations in the commercial and
manufacturing sector. The study also attempted to determine
moderating effect of size on relationship between
profitability, leverage, efficiency, and financial distress in
Kenyan Commercial and Manufacturing Corporations.
Methodology: Positivist philosophy and explanatory nonexperimental research approach were used in this
investigation. The study's population consisted of 25 State
Corporations in Kenya in Commercial and manufacturing
category. For the purposes of this study, a census of all 25
Commercial and Manufacturing Corporations was employed
in study. Secondary data from audited accounts of state
corporations for period 2015-2020 was used in analysis.
Binary logistic regression was used in analysis. Diagnostics
tests included multicollinearity, heteroscedasticity, likelihood
ratio and autocorrelation tests. STATA statistical software
was used to analyse data. Findings were presented using
tables.
Findings: The research outcomes indicated that profitability
had significant effect on financial distress of commercial and
manufacturing state corporations. Results also indicated that
leverage had insignificant effect on financial distress.
Efficiency also had significant effect on financial distress.
The study adopted the product term interaction model
approach in testing moderating effect of firm size on
relationship between profitability, leverage and efficiency on
financial distress. There was evidence showing that firm size
significantly moderated the relationship between efficiency
and financial distress in commercial and manufacturing state
corporations in Kenya.
Unique Contribution to Theory, Practice and Policy: This
study relied on Agency, Stewardship, Efficiency, Peckingorder and Trade-off theories.The results indicated that
profitability and efficiency variables are useful to
management, those charged with governance and users of
financial statement information in detection and mitigation of
financial distress. The management and users of financial
statements information should pay attention particularly to
profitability and efficiency ratios. Findings are also useful to
the government by providing an insight of distressed firms so
that the exchequer can know and make prudence decision on
the distressed state corporations that require financial
bailouts. Lastly, this study adds a contribution to the limited
literatures on financial distress in commercial and
manufacturing state corporations in Kenya.
Description
Article
Keywords
Profitability, Leverage, Efficiency, Efficiency, Firm Size, Financial Distress
Citation
Kibe, P. ., Wamugo, L., & Atheru, G. (2023). Profitability, Leverage, Efficiency and Financial Distress in Commercial and Manufacturing State Corporations in Kenya. International Journal of Finance and Accounting, 8(2), 1–23. https://doi.org/10.47604/ijfa.2026