Modified Dupont Identity and Financial Performance of Listed Non-Financial Companies in Kenya
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Date
2019-04
Authors
Mutua, John Mutisya
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Financial performance of listed non-financial companies at the Kenya’s securities market
has been faced with several challenges. These challenges range from state of financial
uncertainty to bankruptcy. This study investigated the effect of modified DuPont identity
factors as key performance forces that explain financial performance as measured by
return on equity of Non-financial firms companies in Kenya, a case of Nairobi securities
exchange. Recent studies had indicated 74% of the firms in the Nairobi Securities
Exchange either faced financial uncertainty or bankruptcy. The study used key modified
DuPont identity factors related to firm’s performance including tax burden management,
interest burden management, Operating efficiency, asset utilization efficiency and
financial leverage. Investment level was used as a moderating variable in the study. A
theoretical and empirical review of literature was done to establish the research gaps in
the area. Shareholders, Hoffman’s tax planning, Modigliani and Miller, trade-off agency
and Tobin Q theories supported the study. A causal research design was employed to
conduct the research. Secondary unbalanced panel data from year 2011 through 2017
using data collection schedules was done. A census study of fourty six non-financial
companies was done. The analysis of data was done using R-programme and panel
regression models developed. Descriptive, inferential and relational statistics used were
tested at five percent significant level. The Haussmann diagnostic test was used to
determine choice of regression model. The random effect model was eventually chosen
and the results indicated tax burden management, asset utilization efficiency were
significant in influencing the return on equity of non-financial firms positively. Further
the financial leverage and investment level as measured by Tobin q were significant in
influencing the results of the firms negatively. The variable interest burden management
and operating efficiency were insignificant in this study. Further researches could analyse
sectoral impacts on financial performance of both nonfinancial firms and financial firms.
The research has a great significance in suggesting key result drivers in corporate earning
power management. Management of corporates will use the results of this study to
consider and implement different and diverse corporate financial strategies to improve
financial results of non-financial firms in the country and worldwide in general.
Description
A Research Project Submitted to the School of Business in Partial Fulfillment for the Requirements of Master of Business Administration (Finance Option) of Kenyatta University Kenyatta University, April, 2019