Effect of Foreign Exchange Transaction Risk Management on Financial Performance of Firms in Horticulture Industry in Kenya
DOI:
https://doi.org/10.53819/81018102t4047Abstract
In Kenya, the horticulture industry is a big revenue earner with the sector earning the country foreign exchange by exporting their products to various countries overseas. However, in the preceding five years to the study, horticultural firms had steadily declined hindering their sustainability and contribution to the economy. The purpose of the study was to determine the effect of foreign exchange transaction risk management on financial performance of firms in horticulture industry in Kenya. To accomplish the objectives, the study employed an explanatory research design to analyse several horticultural enterprises at a certain point in time. Primary data were obtained through a questionnaire that included questions that were both closed and open-ended, while secondary data were acquired using schedule tables. The population of interest for this study was 63 horticultural enterprises in Nakuru County. Due to the study population's small size, a census of all 63 enterprises was done. After collecting data, Statistical package for social sciences (SPSS) version 21 was used to derive descriptive statistics and conduct multiple linear regression analysis. The averages and standard deviation were determined using descriptive statistics, and multiple linear regression analysis was applied to test the study's hypotheses. After that, the output was summarized in reports and frequency tables. The findings revealed transaction risk management having a significance value of 0.000 and a coefficient of 0.533. The significance value of 0.000 was less than the standard 0.05 which implied that foreign exchange transaction risk management had a noteworthy influence on ROCE value at 95 percent confidence level. The study concludes that foreign exchange transaction risk management has an influence on profitability of horticulture firms in Kenya. The study thus recommends that the senior management in the horticultural businesses should enter into a variety of forward contracts and options to enable them to manage this risk effectively and have the expected positive effect on their ROCE.
Keywords: Foreign Exchange, Transaction Risk Management, Horticulture Industry, Financial Performance.
References
AFFA, (2014). Agriculture, Livestock and Fisheries Authority. Horticulture Validated Report, Government of Kenya: Nairobi, Kenya.
Ahmad, Z. & Hussanie, I. (2018). Shareholders wealth maximization: Objective of Financial Management Revisited. International Journal of Enhanced Research in Management & Computer Applications, 7(3), 739-761.
Aswathapa, K. (2010). International business. 4th Edition, Tata McGraw Hill.
Avutswa, N. (2009). Management of Foreign Exchange Risk: A case study of the horticultural industry in Kenya. Unpublished, University of Nairobi.
Barrett, H., Browne, A. Ilbery, B., Jackson, G. & Binns, T. (1997). Prospects for horticultural exports under trade liberalization in adjusting African economies. Report submitted to the Department for International Development, Coventry University, and Coventry, UK.
Camp, W. G. (2001). Formulating and Evaluating Theoretical Frameworks for Career and Technical Education Research. Journal of Vocational Educational Research, 26 (1), 27-39. https://doi.org/10.5328/JVER26.1.4.
Carpenter, M.A. & Dunung, S.P. (2012). Challenges and opportunities in international business.
Chirchir, F.K., Muse, M.A. & Jagongo, A. (2015). Exchange rate volatility and export performance of tea firms in Kenya. International Journal of Science and Research, 6(2), 2166-2173.
Crane, L.M. (2009). Measuring financial performance: A critical key to managing risk.
Henry, E., Robinson, T. & Van Greuning, H. (2008). International Financial Statement Analysis. Wiley, 1st Edition.
Horcher, K.A. (2005). Essentials of Financial Risk Management. John Wiley and Sons, Inc. Hoboken, New Jersey. https://doi.org/10.1002/9781118386392
Kallianiotis, J.N. (2013) (b). Foreign exchange risk and its management. Exchange Rates and International Financial Economics, 221-252. https://doi.org/10.1057/9781137318886_6
Kalui, F.M. (2009). Effects of financial risk management strategies on the performance of horticulture firms. Unpublished, University of Nairobi.
Khalik, A.R. (2014). Accounting for risk, hedging, and complex contracts. Routledge, Taylor and Francis Group. Third Avenue, New York.
Kim, K.A. & Kim, S.H. (2015). Global corporate finance: A focused approach. 2nd Edition, World Scientific Publishing Co. Ltd, Shelton Street, London. https://doi.org/10.1142/9246
Lumpkin, T.A., Weinberger, K. & Moore, S. (2005). Increasing income through fruit and vegetable production opportunities and challenges. Consultative group on International Agricultural Research Science Forum. December 6, 2005, Marrakech, Morocco.
Madura, J. (2012). International Finance Management. South-Western College Pub, 11th Edition.
McCarron, S. (2004). Reducing exchange risk and exposure: The value of foreign exchange currency hedging strategies. Theses Digitization Project, 2534.
Mumoki, A.N. (2009). Foreign exchange risk management: strategies and techniques used by banks in Kenya to manage foreign exchange risk exposure. Unpublished, University of Nairobi.
Muriuki, T.G. (2013). The effect of foreign exchange rate fluctuations on the financial performance of listed companies in Kenya. Unpublished, University of Nairobi.
Ouma, S. (2010). Global standards, local realities: Private agri-food governance and the restructuring of the Kenya Horticulture Industry. Econ, Geog, 86, 197-222. https://doi.org/10.1111/j.1944-8287.2009.01065.x
Pappaioannou, M. (2006). Exchange risk measurement and management: Issues and approaches for firms. IMF Working Paper, No. WP/06/255. https://doi.org/10.5089/9781451865158.001
Partnoy, F. (2001). Financial derivatives and the costs of regulatory arbitrage.
Parvutoiu, I., Popescu, A. & Grigoras, M.A. (2010). Profitability analysis – A study case Agroindustriala Pantelimon Joint Venture Dairy Farming Company. Scientific papers series management, economic engineering in Agriculture and Rural Development, 10(2), 161-164.
Pinto, J.A. (2002). Foreign currency translation method choice: Insights from game theory. The Journal of Applied Business Research, 18(4), 25-34. https://doi.org/10.19030/jabr.v18i4.2126
Priewe, J. (2014). An Asset Price Theory of Exchange Rates.
Satya, R.M. (2012). Questionnaire designing for a survey. Journal of Indian Orthodontic Society, 46, 37-41. https://doi.org/10.5005/jp-journals-10021-1104
Sercu, P. (2009). International finance: Theory into practice. Princeton University Press. William Street, Princeton, New Jersey.
Takatoshi, I., Satoshi, K., Kiyotaka, S. & Junko, S. (2013). Exchange rate risk management of export firms: New findings from a questionnaire survey. RIETI Discussion Paper Series 13-E-024.
Tasneem, S.J. (2006). Risk management practices to maintain corporate reputation. Unpublished, University of South Africa.
Tschirley, D. Muendo, K.M. & Weber, M.T. (2018). Improving Kenya’s domestic horticultural production and marketing system: Current competitiveness, forces of change, and challenges of the future. Horticultural Marketing, 2.
