Liquidity and Performance of Selected Firms Listed at the Nairobi Securities Exchange, Kenya
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Date
2020
Authors
Kangogo, Cherutich Clara
Irungu, Anthony Mugetha
Journal Title
Journal ISSN
Volume Title
Publisher
African Journal of Emerging Issues
Abstract
Purpose of the Study: The study sought to determine the effect of Liquidity on financial
performance of selected firms listed at Nairobi Securities Exchange. Managers strive to achieve
strategic objectives of firms, which include maximum returns on equity and assets. However,
unanticipated macro and micro environmental factors may cause a firm to fall into financial
distress which may negatively influence its financial performance. Manufacturing, Construction
and Allied sectors play an important role in the implementation of vision 2030 and contribute
immensely to the country’s economic growth.
Statement of the Problem: Declining returns and repeated losses reported by firms under these
sectors have resulted in a slow growth by individual sectors as well as overall national economic
growth. Poor performance has been attributed to cycles of financial distress problems affecting
firms under manufacturing and construction sectors in the recent past. Identified knowledge gaps
prompted the study to mainly determine the effect of financial distress measured in terms of
liqduity on financial performance of selected firms listed at NSE.
Research Menthodology: Panel research design was employed by the study and census adopted
due to the small population size. Secondary panel data collected from published financial
statements of the entire 4 financially distressed firms listed under manufacturing, construction and
allied sectors covering 10 years (2009-2018) were utilized. Descriptive and inferential statistics
was used to analyze panel data with the aid of statistical software (STATA, version14). Panel
regression analysis approach was used to test the hypotheses at 95% confidence level and
diagnostic tests was performed before conclusions were drawn.Result: Findings were presented in table format and supported by narrations. The study found that
liquidity has a significant positive effect on the financial performance (return on assets and return
on equity) in the selected firms listed at Nairobi Securities Exchange.
Conclusion: The study concludes that liquidity has a positive and significant effect on the financial
performance (return on assets and return on equity) in the selected firms listed at Nairobi Securities
Exchange.
Recommendation: The study recommends that listed firms at NSE should increase their liquidity
to enhance their working capital thereby improving their performance and making the businesses
sustainable. Liquidity can be increased by reducing the duration of time given to their customers
to pay for goods sold to them as well as developing credit policies to define and reduce the credit
period given to their customers (number of days given to debtors) to clear their balances.
Description
Article
Keywords
Financial Distress, Liquidity, Financial Performance, Nairobi Securities Exchange
Citation
Kangogo , C. C., & Irungu, A. M. (2020). Liquidity And Performance of Selected Firms Listed At The Nairobi Securities Exchange, Kenya. African Journal of Emerging