Value chain financing and financial performance of edible oil manufacturing companies in Kenya
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Date
2018
Authors
Agarwal, Rajiv
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Edible oil manufacturing companies in Kenya were making profits but not optimal
profits. There was no shortage of market demand for the commodity in Kenya and
East Africa in general. However, the industry is affected by low production of raw
materials in the country and inadequate financing by members in the value chain
besides lack of clear initiative and knowledge in developing the value chain. It was
therefore necessary to estimate the internal and external financing and investment
needs in the development of value chain for the sector. The general objective of this
research was to determine the effects of financing by members in the value chain on
the financial performance of the edible oil manufacturing companies in Kenya,
while the specific objectives were to establish the effects of financing in raw
material and operation, financing in working capital arrangement, primary activities
and supporting activities together with establishing the effects of moderating
variable, firm characteristics such as firm size and capital structure, on the financial
performance of these companies. The study used descriptive retrospective panel data
and philosophy was positivism where all manufacturing companies in the edible oil
sector in Kenya were included making it a census study. The secondary data was
extracted from financial statements of edible oil manufacturing companies for the
period 2008 to 2014 and primary data by using the interview guide administered to
the company executives. Using Principal Component Analysis, composite index of
dependent variable (financial performance) was computed representing 3
components for further analysis in the study. Descriptive analysis, correlation and
panel regression analysis were used to investigate the relationship and association of
variables in value chain financing. The results of this study have provided an
improved understanding of the value chain financing and how improved and
appropriate financing affects the financial performance of edible oil sector in Kenya.
The major findings and conclusions of this study show that, financing in primary
activities through inbound logistic, had negative statistical effect on financial
performance of companies (Beta value -4.56, P-Value 0.04). Support activities
through procurement cost had positive statistical effect on financial performance of
companies (P-Value 0.00001, Beta value 6.09). The moderating variable firm
characteristics measured through Firm Size had positive statistical effect on financial
performance of companies (P-Value 0.0001, Beta value 2.14). Financing through
raw material and working capital did not have statistical effect on the financial
performance. The study provided statistical model for determining the appropriate
finance mix in primary activities, supporting activities and working capital to utilize
the optimum capacity for edible oil manufacturing companies in Kenya. Study also
suggested that additional financing in value chain affects the financial performance
and therefore should be from long term sources of finance. Result of the study will
help in understanding and developing the value chain. The study will also help
policy makers for preparing guidelines for financial institutions for financing of
value chain. The study results form the basis for future research in the area of value
chain financing in other manufacturing sectors and can be used by the management
of the companies to develop strategies for financing mix in their companies based on
the model developed by the study for predicting the financial performance.
Description
Thesis submitted to the school of business in partial fulfilment of the requirements for the award of the degree of doctor of philosophy (finance & accounting) of Kenyatta University. June, 2018