Working Capital Management Practices and Financial Performance of Manufacturing and Allied Firms Listed at Nairobi Securities Exchange Kenya
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Date
2024-10
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Kenyatta University
Abstract
Manufacturing and allied firms in Kenya play a very important role in economic development. Nevertheless, the companies have seen fluctuations in their financial returns along with a downward trend in their overall performance. Various studies have been done but do not clearly indicate the extent to which the various components of working capital affect the performance of the firms. Further study is necessary to explore the diverse impacts of these factors on the financial performance of organisations. The objective of the study was to ascertain the relationship between working capital management practices and financial performance of manufacturing and allied firms listed in NSE. The specific objectives of the study was to; to determine the effect of inventory turnover management practices on financial performance, to ascertain the effect of accounts receivable management practices on financial performance and to determine the effect of accounts payable management practices on financial performance of firms listed in Nairobi Securities Exchange The key theory to anchor the study was be: Keynesian liquidity preference theory, financing advantage theory, Transactions costs theory, Net trade cycle theory and theory of Arbitrage Pricing. Explanatory research design, cluster random sampling was used in the study. The target population was 9 manufacturing and allied firms listed in the NSE. The research employed secondary data sourced from financial reports as published in the NSE manual and KNBS for the time frame spanning from 2010 to 2020. Panel regression analysis and Pearson’s product moment correlation analysis was employed for inferential analysis while means and standard deviations were utilized for purposes of descriptive analysis. Various diagonistic tests shall be carried out including normality, Multicollinearity, heteroskedasticity, autocorrelation, stationary test and test for fixed or random effect. The first objective sought to ascertain the effect of account receivable management practices on financial performance of manufacturing and allied firms in Kenya listed at the Nairobi Securities Exchange, regression analysis results showed that account receivables was significantly positively related to financial performance as showed by P- value of 0.004. Inventory management practices showed statistically significant positive effect as indicated by P-value of 0.030 while Account payables management practices showed that there was a statistically significant positive effect with P- value of 0.365. Finally, cash management practices showed that cash management practices had a positive effect on financial performance as evidenced by a γ = 0.419 with a P-value =0.004 at 5% level of significance. The study concluded that Manufacturing firms should prioritize account receivables management to improve operations and finances, Kenya's listed manufacturing and allied firms may benefit from improved inventory management, Management considers accounts payable in financial performance, Kenyan listed manufacturing and allied firms may benefit from cash management and that Size affects working capital management and financial performance of listed manufacturing and allied firms in Kenya. The study therefore recommends that Manufacturing enterprises should have a system that flags early supplier payments and that Manufacturing enterprises should buy qualified raw materials and goods just-in-time.
Description
A Research Project Submitted to the School of Business, Economics and Tourism in Partial Fulfillment of the Requirement for the Award of Degree of Master of Business Administration (Finance), Kenyatta University
Supervisor
Francis Gitagia