Firm Characteristics and Working Capital Financing Adopted by Non-Financial Firms Listed at Nairobi Securities Exchange, Kenya


  • Gitonga Jason Kirugumi Kenyatta University
  • Daniel Makori Kenyatta University



The working capital requirement is critical to any organization. However, the working capital of numerous non-financial firms listed at NSE has been negative. Thus, the study examined the influence of firm characteristics on working capital financing.  Precisely, the study examined the influence of firm size, asset tangibility, profitability and leverage on working capital financing. Five theories, namely, Baumol design, pecking order theory, trade-off concept, economies of scale theory and profit maximization theory, informed the study. The study employed an explanatory research design. The target population were 45 non-financial firms listed at NSE. The study carried out a census of all the firms. The research collected secondary panel data. The study period was between 2015 and 2019. The results from the model fitness showed that firm size (log of total assets), asset tangibility, profitability (ROA) and leverage explain 64.70% of the variations in the working capital financing of the non-financial firms. The correlation results showed that firm size measured through the log of total assets, asset tangibility and profitability were positively associated with working capital financing. In contrast, leverage was found to be negatively associated with working capital financing. The regression results showed that firm size, asset tangibility and profitability have a significant positive effect on working capital financing. However, the regression results revealed that leverage has a significant negative effect on working capital financing. The study recommended non-financial firms listed at NSE look for strategies that increase their assets. Enormous firms are expected to be more financially stable with more investments, thus reducing borrowing. In addition, the firms should look for ways to increase asset tangibility. The firms can invest in more assets such as plant and equipment, buildings, computer equipment, software, furniture, land, machinery, and vehicles. Moreover, the non-financial firms listed at NSE to look for strategies to reduce the leverage levels. External funding of the operations, such as debts, should be used if all the other internal financing options are exhausted.

Keywords: Firm size, asset tangibility, profitability, leverage, working capital financing, non-financial firms listed at NSE, Kenya

Author Biographies

Gitonga Jason Kirugumi, Kenyatta University

Post graduate student, Kenyatta University

Daniel Makori, Kenyatta University

Lecturer, Department of Accounting and Finance, School of Business, Kenyatta University


Abbas, M. (2016). Determinants of capital structure: Empirical evidence from listed firms in Norway (Master's thesis). Oslo and Akershus University College of Applied Sciences, Oslo, Norway.

Ahmad, N. S. M., & Atniesha, M. R. A. A. (2018). The Pecking Order Theory and Start-up Financing of Small and Medium Enterprises: Insight into Available Literature in the Libyan Context. Journal of Finance, 3(2), 16-21

Ahn, S. C., & Moon, H. R. (2014). Large-N and large-T properties of panel data estimators and the Hausman test. In Festschrift in Honor of Peter Schmidt (pp. 219-258). Springer, New York, NY.

Alipour, M., Mohammadi, M.F.S., & Derakhshan, H. (2015). Determinants of Capital Structure: An empirical study of firms in Iran. International Journal of law and management, 57(1), 53-83.

Altaf, N., & Ahmad, F. (2019). Working capital financing, firm performance and financial constraints: Empirical evidence from India. International Journal of Managerial Finance, 11 (2), 16-21.

Alvarez, F., & Lippi, F. (2017). Cash burns: An inventory model with a cash-credit choice. Journal of Monetary Economics, 9(5), 99-112.

Amaral, P. V., & Anselin, L. (2014). Finite sample properties of M oran's I test for spatial autocorrelation in Tobit models. Papers in Regional Science, 93(4), 773-781.

Andani, A., & Al-hassan, S. (2016). The determinants of the financing decisions of listed and non-listed firms in Ghana. Asian Economic and Financial Review, 2(7), 751-771.

Auditor General (2019). Report of the Auditor General on Kenya Power and Lighting Company for the year ended 30th June 2019. Retrieved from

Aziidah, N. (2017). The Effect of Financial Leverage on The Financial Performance of Kenyan Energy and Petroleum Firms Listed on the NSE (Doctoral dissertation, United States International University-Africa).

Bassey, N. E., Arene, C. J., & Okpukpara, B. C. (2014). Determinants of capital structure of listed agro firms in Nigeria. Economic Affairs, 59 (1), 35-47.

Baumol, W. J., & Vinod, H. D. (1970). An inventory theoretic model of freight transport demand. Management science, 16(7), 413-421.

Bejan, A., Almerbati, A., & Lorente, S. (2017). Economies of scale: The physics basis. Journal of Applied Physics, 121(4), 44-57.

Byoun, S., & Rhim, J. C. (2005). Tests of the pecking order theory and the tradeoff theory of optimal capital structure. Global Business and Finance Review, 2(1) 1-16.

Callaghan, C. W. (2019). Business research methodologies and the need for economies of scale in the business research process: Harnessing the innovation opportunities of novel technologies and technological change. Electronic Journal of Business Research Methods, 17(3), pp179-190.

Chang, C. C., Batmunkh, M. U., Wong, W. K., & Jargalsaikhan, M. (2019). Relationship between capital structure and profitability: Evidence from Four Asian Tigers. Available at SSRN 3411977.

Charman, A. J., Petersen, L. M., Piper, L. E., Liedeman, R., & Legg, T. (2017). Small area census approach to measure the township informal economy in South Africa. Journal of Mixed Methods Research, 11(1), 36-58.

Chauhan, Gaurav S., and Pradip Banerjee (2018). Financial constraints and optimal working capital–evidence from an emerging market. International Journal of Managerial Finance, 12(7), 38-52.

Chen, L. J., & Chen, S. Y. (2011). How the pecking-order theory explain capital structure. Journal of International Management Studies, 6(3), 92-100.

Chesang, D. (2017). Effect of Financial Leverage on Profitability of Listed Agricultural Firms at The Nairobi Securities Exchange (Doctoral dissertation, Kisii University).

Choi, S., Oh, G., & Jung, W. S. (2008). Hurst exponent and prediction based on weak-form efficient market hypothesis of stock markets. Physical A: Statistical Mechanics and its Applications, 387(18), 4630-4636.

Dang, C., Li, Z. F., & Yang, C. (2018). Measuring firm size in empirical corporate finance. Journal of banking & finance, 86, 159-176.

Day, R. H., Aigner, D. J., & Smith, K. R. (2001). Safety margins and profit maximization in the theory of the firm. Journal of Political Economy, 79(6), 1293-1301.

Deloitte (2020). Kenya Airways Annual Report & Financial Statements 2019. Retrieved from

Dereeper, S., & Trinh, Q. D. (2015). Trade-Off Theory or Pecking Order Theory with a State-Ownership Structure: The Vietnam Case. International Review of Business Research Papers, 11(1), 114-132.

Dierker, M., Lee, I., & Seo, S. W. (2019). Risk changes and external financing activities: Tests of the dynamic trade-off theory of capital structure. Journal of Empirical Finance, 52, 178-200.

Divya, R., & Jayanthi, V. E. (2020). Efficient optimal resource allocation for profit maximization in software defined network approach to improve quality of service in cloud environments. Journal of Ambient Intelligence and Humanized Computing 4(3), 1-10.

East African Portland Cement Company Annual Reports (2019). Annual Report & Financial Statements 2017/2018. Retrieved from

Eysimkele, A., & Koori, D. J. (2019). Financial Leverage and Performance of the Agricultural Companies Listed at Nairobi Securities Exchange, Kenya. Journal of Finance and Accounting, 3(5), 76-88

Frank, M. Z., & Goyal, V. K. (2008). Trade-off and pecking order theories of debt. In Handbook of empirical corporate finance (pp. 135-202). Elsevier.

Ghasemi, A., & Zahediasl, S. (2012). Normality Tests for Statistical Analysis: A Guide for Non-Statisticians. International Journal of Endocrinology and Metabolism, 10(2), 486–489.

Halunga, A. G., Orme, C. D., & Yamagata, T. (2017). A heteroskedasticity robust Breusch–Pagan test for Contemporaneous correlation in dynamic panel data models. Journal of econometrics, 198(2), 209-230.

Hasan, A. L. (2017). Conducting census under adverse conditions; challenges and lessons learned. Journal of Finance and Management, 5(2), 16-31

Hossain, M. I., & Hossain, M. A. (2015). Determinants of capital structure and testing of theories: A study on the listed manufacturing companies in Bangladesh. International Journal of Economics and Finance, 7(4), 176-190.

Jafar, H., Muda, I., Zainal, A., & Yasin, W. (2010). Profit Maximization Theory, Survival-based theory and contingency theory: A review on several underlying research theories of corporate turnaround. Journal of Economy, 13(4), 16-31

Jagpal, H. S. (1982). Multicollinearity in structural equation models with unobservable variables. Journal of Marketing Research, 19(4), 431-439.

Jahn, J., & Brühl, R. (2018). How Friedman’s view on individual freedom relates to stakeholder theory and social contract theory. Journal of Business Ethics, 153(1), 41-52.

Kaguri, A. W. (2016). Relationship between firm characteristics and financial performance of life insurance companies in Kenya. Journal of Finance and accounting, 5(12), 17-38

Kasozi, J. (2017). The effect of working capital management on profitability: a case of listed manufacturing firms in South Africa. Investment Management and Financial Innovations, 14(2), 336-346.

Kiiru, J. W., Kirori, G. N., & Omurwa, J. K. (2019). Financial Management Practices and Financial Performance of Services Industry in Kenya: Case of Kenya Airways. Journal of Finance and Accounting, 3(2), 76-93.

Kinyua, J., B., & Muriu, P., W. (2017). Determinants of Capital Structure of Agricultural Firms in Kenya. European Scientific Journal, 13(7), 277-299.

Koksal, B., & Orman, C. (2015). Determinants of Capital Structure: Evidence from a major developing economy. Small Business Economics, 44(2), 255-282.

Lazaridis, I., & Tryfonidis, D. (2016). Relationship between working capital management and profitability of listed companies in the Athens stock exchange. Journal of financial management and analysis, 19(1), 46-58

Miller, M. H., & Orr, D. (1966). A Model of the Demand for Money by Firms. The Quarterly journal of economics, 80(3), 413-435.

Minnema, J., & Andersson, A. (2018). The relationship between leverage and profitability: A quantitative study of consulting firms in Sweden. Journal of Finance, 9(4), 15-31

Moraes, M. B., & Nagano, M. S. (2014). Evolutionary models in cash management policies with multiple assets. Economic Modelling, 3(9) 1-7.

Mwangi, L. W., Makau, M. S., & Kosimbei, G. (2014). Relationship between capital structure and performance of non-financial companies listed in the Nairobi Securities Exchange, Kenya. Global Journal of Contemporary Research in Accounting, Auditing and Business Ethics, 1(2), 72-90.

Nairobi Securities Exchange, NSE (2021) Listed Companies. Retrieved from

Njeri, W. R., Namusonge, G. & Mugambi, F. (2017). Effect of working capital management on financial sustainability of government owned entities in the ministry of agriculture, livestock and fisheries (MOALF), Kenya. The strategic journal for Business & Change Management, 4(3), 11.

Njuguna, A. M. (2018). Effect of Working Capital Management on Financial Performance of Construction and Allied Sector Firms Listed in the Nairobi Securities Exchange for the Period 2012-2016. (Doctoral dissertation, United States International University-Africa).

Nyang'oro, O. (2016). Determinants of Capital Structure of Listed Firms in Kenya and the Impact of Corporate Tax. AERC Research Paper 329, African Economic Research Consortium, Nairobi.

Onchangwa, G. A. (2019). Effects of Working Capital Management on Financial Distress of Non-Financial Firms Listed at the Nairobi Securities Exchange Market (Doctoral dissertation, JKUAT-COHRED).

Ooko, A., Githui, T., & Omurwa, M. J. (2018). Firm Characteristics and Financing of Working Capital Requirement in Organizations: A Case of Non-Financial Firms Listed at the Nairobi Securities Exchange (NSE). Journal of Finance and Accounting, 2(1), 34-56.

Pozzoli, M., & Paolone, F. (2017). Corporate financial distress: a study of the Italian manufacturing industry. Springer.

Quayyum, S. T. (2014). Effects of working capital management and asset tangibility: evidence from the cement Industry of Bangladesh. Journal of Business and Technology 6(1), 37-47.

Raheman, A., & Nasr, M. (2017). Working capital management and profitability–case of Pakistani firms. International review of business research papers, 3(1), 279-300.

Rahi, S. (2017). Research design and methods: A systematic review of research paradigms, sampling issues and instruments development. International Journal of Economics & Management Sciences, 6(2), 1-5.

Sharma, A. K., & Kumar, S. (2016). Effect of working capital management on firm profitability: Empirical evidence from India. Global Business Review, 12(1), 159-173.

Shrivastava, A Kumar, N., & Kumar, K.P. (2017). Bayesian analysis of working capital management on corporate profitability: Evidence from India. Journal of Economic Studies, 44(4), 568-584.

Struk, M. (2015). Municipality size and local public services: Do economies of scale exist? NISPAcee Journal of Public Administration and Policy, 7(2), 151-171.

Tong, G., & Green, C. J. (2005). Pecking order or trade-off hypothesis? Evidence on the capital structure of Chinese companies. Applied economics, 37(19), 2179-2189.

Toutkoushian, R. K., & Lee, J. C. (2018). Revisiting economies of scale and scope in higher education. In Higher education: Handbook of theory and research (pp. 371-416). Springer, Cham.

Tran, H., Abbott, M., & Yap, C. J. (2017). How does working capital management affect the profitability of Vietnamese small-and medium-sized enterprises. Journal of Small Business and Enterprise Development. 7(2), 16-23.

Vaghfi, S., Moghaddam, A., & Khoshrou, M. (2014). Impact of Working Capital Management on Profitability Ratios: Evidence from Iran. European Scientific Journal, 10(1), 374–381.

Wahome, M. N. (2018). The influence of firm-specific factors on capital structure of insurance companies in Kenya. (South Eastern Kenya University, Doctoral dissertation).

Wayongah, D., & Ochieng, W. (2019). Analysis of firm size, leverage and financial performance of non-financial firms in Nairobi securities exchange, Kenya (Doctoral dissertation, Maseno University).

Wicker, P., Breuer, C., Lamprecht, M., & Fischer, A. (2014). Does club size matter: An examination of economies of scale, economies of scope, and organizational problems. Journal of Sport Management, 28(3), 266-280.

Young, S. L., & Makhija, M. V. (2014). Firms’ corporate social responsibility behavior: An integration of institutional and profit maximization approaches. Journal of International Business Studies, 45(6), 670-698.




How to Cite

Kirugumi, G. J., & Makori, D. (2022). Firm Characteristics and Working Capital Financing Adopted by Non-Financial Firms Listed at Nairobi Securities Exchange, Kenya. Journal of Finance and Accounting, 6(2), 41–62.