Working Capital Management and Financial Performance of Agricultural Firms Listed on Nairobi Securities Exchange, Kenya
DOI:
https://doi.org/10.53819/81018102t4127Abstract
The listed firms in Kenya have been experiencing declining and inconsistent performance in the recent years. The study sought to establish effect of working capital management on financial performance of agricultural firms3listed on Nairobi Securities Exchange. Specifically, study established the influence of accounts receivable collection period on financial performance; determined5the effect of creditors payment period on financial performance; established effect of operating cash flow on financial performance; and determined effect of inventory turnover on financial performance and establish the controlling effect of firm size on the relationship between working capital and financial performance of agricultural firms listed on Nairobi Securities Exchange. The study would be important for policy, practice and theory. The study was based on agency theory, transaction cost theory, Miller-Orr Model and Baumol’s Model which formed the theoretical basis for this research. This research adopted a descriptive research and correlational research designs. This study’s target population comprised seven agricultural5firms listed on the NSE sampling seven agricultural firms’ listed5on the NSE between 2016 and 2022 using a census survey. Data was obtained from secondary sources for a period between 2016 and 2022. Panel regression, descriptive and correlation statistics were used for analysis. The study established a negative correlation between accounts receivable collection period and financial performance. The study also revealed that creditor’s payment period had a positive but insignificant relationship with financial performance of the sampled firms. Moreover, there was a positive significant relationship between cash flows and financial performance. This study, therefore, concluded that there exists a positive significant relationship between cash flows and financial performance of agricultural firms listed on Nairobi Securities Exchange. This study, therefore, concluded that accounts receivable collection period has a significant negative relationship with financial performance of agricultural firms listed on Nairobi Securities Exchange. The study recommends that agricultural firms listed on Nairobi Securities Exchange reduce their accounts receivable collection period; increase their operating cash flows; and reduce their inventory turnover period for increased financial performance.
Keywords: Capital management, accounts5receivable collection period, creditors’ payment period, operating cash flows, inventory turnover period, firm size, financial Performance
References
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Ahmed, A. Y., & Mwangi, L. W. (2022). Working Capital Management and Financial Performance of Small and Medium Enterprises in Garissa County, Kenya. International Journal of Current Aspects in Finance, Banking and Accounting, 4(1), 56-71. https://doi.org/10.35942/ijcfa.v4i1.229
Aluoch, M. O. (2021). Corporate Governance, Financial Characteristics, Macroeconomic Factors and Financial Performance of Agricultural Firms Listed on the Nairobi Securities Exchange, Kenya. https://doi.org/10.19044/esj.2021.v17n19p71
Amanda, R. I. (2019). The impact of cash turnover, receivable turnover, inventory turnover, current ratio and debt to equity ratio on profitability. Journal of research in management, 2(2). https://doi.org/10.32424/jorim.v2i2.66
Aytac, B., Hoang, T. H. V., Lahiani, A., & Michel, L. (2020). Working capital management and profitability of wine firms in France: an empirical analysis. International Journal of Entrepreneurship and Small Business, 41(3), 368-396. https://doi.org/10.1504/IJESB.2020.110803
Chamberlain, G. (1982). Multivariate regression models for panel data. Journal of econometrics, 18(1), 5-46. https://doi.org/10.1016/0304-4076(82)90094-X
Chang, C. (2018). Cash conversion cycle and corporate performance: Global evidence. International Review of Economics & Finance, 56(2), 568–581. https://doi.org/10.1016/j.iref.2017.12.014
Cont, R., Kotlicki, A., & Valderrama, L. (2020). Liquidity at risk: Joint stress testing of solvency and liquidity. Journal of Banking & Finance, 118, 105871. https://doi.org/10.1016/j.jbankfin.2020.105871
Dan, P. (2020). Accounts receivable management and corporate performances: empirical evidence from quoted manufacturers in Nigeria.
Das, S. (2019). Cash flow ratios and financial performance: a comparative study. Accounting, 5(1), 1-20. https://doi.org/10.5267/j.ac.2018.6.004
Dechow, P. M., Kothari, S. P., & Watts, R. L. (1998). The relation between earnings and cash flows. Journal of accounting and Economics, 25(2), 133-168. https://doi.org/10.1016/S0165-4101(98)00020-2
El Bernoussi, R., & Rockinger, M. (2019). Rebalancing with Transaction Costs: Theory, Simulations, and Actual Data. Simulations, and Actual Data (November 29, 2019). https://doi.org/10.2139/ssrn.3495461
Fernández‐López, S., Rodeiro‐Pazos, D., & Rey‐Ares, L. (2020). Effects of working capital management on firms' profitability: evidence from cheese‐producing companies. Agribusiness, 36(4), 770-791. https://doi.org/10.1002/agr.21666
Gerio, P. J., Ondiek, B. A., & Tibbs, C. Y. (2020). Influence of financing on financial performance of agricultural firms listed on Nairobi Securities Exchange. Reviewed Journal International of Financial Management, 2(1), 1-9.
Ghoshal, S., & Moran, P. (1996). Bad for practice: A critique of the transaction cost theory. Academy of management Review, 21(1), 13-47. https://doi.org/10.2307/258627
Godswill, O., Ailemen, I., Osabohien, R., Chisom, N., & Pascal, N. (2018). Working capital management and bank performance: Empirical research of ten deposit money banks in Nigeria. Banks & bank systems, 13(2), 49-61. https://doi.org/10.21511/bbs.13(2).2018.05
Haralayya, B. (2021). Working Capital Management at TVS Motors, Bidar. Iconic Research And Engineering Journals, 4(12), 255-265.
Hossain, M. S., & Saif, A. N. M. (2019). Impact of firm size on financial performance of banking companies in Bangladesh. Journal of Banking & Financial Services, 11(2), 143-160.
Hussain, S., Nguyen, V. C., Nguyen, Q. M., Nguyen, H. T., & Nguyen, T. T. (2021). Macroeconomic factors, working capital management, and firm performance—A static and dynamic panel analysis. Humanities and Social Sciences Communications, 8(1), 1-14. https://doi.org/10.1057/s41599-021-00778-x
Kasozi, J. (2017). The effect of working capital management on profitability: A case of listed manufacturers in South Africa. Investment management and financial innovations, 14(2), 336-346. https://doi.org/10.21511/imfi.14(2-2).2017.05
Kevser, M., & Leyli, E. B. (2019). The relationship between the ownership structure of banks and their financial performance: empirical research for Turkey. Ekonomski horizonti, 21(2), 111-129. https://doi.org/10.5937/ekonhor1902111K
Kimutai, N. H., & Muigai, R. G. (2018). Effect of working capital management on the financial performance of small and medium enterprises in Nairobi County, Kenya. Journal of International Business, Innovation and Strategic Management, 2(3), 126-146.
Kinuthia, D. N., Maimba, J. K., & Mwangi, L. W. (2020). Working Capital Management and Financial Performance of Listed Manufacturers in Kenya. International Journal of Business Management and Finance, 3(2).
Kiyotaki, N., & Moore, J. (2019). Liquidity, business cycles, and monetary policy. Journal of Political Economy, 127(6), 2926-2966. https://doi.org/10.1086/701891
Le, H. L., Vu, K. T., Du, N. K., & Tran, M. D. (2018). Impact of working capital management on financial performance: The case of Vietnam. International Journal of Applied Economics, Finance and Accounting, 3(1), 15-20. https://doi.org/10.33094/8.2017.2018.31.15.20
Liman, M., & Mohammed, A. (2018). Operating cash flow and corporate financial performance of listed conglomerate companies in Nigeria. Journal of Humanities and Social Science, 23(2), 1-11. https://doi.org/10.22452/ajba.vol11no1.4
Linh, N. T. P., & Mohanlingam, S. (2018). The effects of cash conversion cycle on profitability: An insight into the agriculture and food industries in Thailand. Asian Journal of Business and Accounting, 11(1), 97-119.
Miller, M. H., & Orr, D. (1966). A Model of the Demand for Money by Firms. The Quarterly journal of economics, 80(3), 413-435. https://doi.org/10.2307/1880728
Muhindi, K. A., & Ngaba, D. (2018). Effect of firm size on financial performance on banks: Case of commercial banks in Kenya. International Academic Journal of Economics and Finance, 3(1), 175-190.
Mun, S. G., & Jang, S. (2017). Working capital, cash holding, and profitability of restaurant firms. International Journal of Hospitality Management, 48(1), 1–11. https://doi.org/10.1016/j.ijhm.2015.04.003
Munene, F. (2018). Accounts Receivable Management and Financial Performance of Embu Water and Sanitation Company Limited, Embu County, Kenya. Unpublished Thesis, University of Nairobi.
Munene, F., & Tibbs, C. Y. (2018). Accounts receivable management and financial performance of Embu Water and Sanitation Company Limited, Embu County, Kenya. International Academic Journal of Economics and Finance.
Nai-Chiek, A. I. K., & Peck-Ling, T. (2019). Working capital management and financial performance of Malaysian construction sector companies. Journal of Contemporary Issues and Thought, 9, 86-94. https://doi.org/10.37134/jcit.vol9.9.2019
Nguyen, A. H., Pham, H. T., & Nguyen, H. T. (2020). Impact of working capital management on firm's profitability: Empirical evidence from Vietnam. The Journal of Asian Finance, Economics and Business, 7(3), 115-125. https://doi.org/10.13106/jafeb.2020.vol7.no3.115
Ochieng, M. R. M., Jagongo, P. A. O., & Ndede, P. F. W. Working Capital Management and Financial Performance of Manufacturing and Allied Category of Firms Listed on the Nairobi Securities Exchange, Kenya.
Ogunlade, O., Oseni, M., & Adeyemi, M. A. (2021). A Panel Study of Working Capital Management and Financial Performance of Nigeria’s Manufacturers. Indiana Journal of Economics and Business Management, 1(1), 25-31.
Okoror, J. A., Mainoma, M. A., Aruwa, S. A. S., & Uwaleke, U. (2022). Working Capital and Firm Financial Performance in Listed Manufacturers in Nigeria. https://doi.org/10.26765/DRJMSS30557172
Olaoye, S. A., & Okunade, R. A. (2020). Working Capital Management and Profitability of Listed Manufacturers in Nigeria. Journal of Economics, Management and Trade, 63-69. https://doi.org/10.9734/jemt/2020/v26i730275
Oyieko Osebe, M. (2018). An Evaluation of The Effect of Cash Flow Management Activities on Financial Performance of Manufacturers Listed on Nairobi Securities Exchange (Doctoral dissertation, Kisii University).
Ozcan, I. S. I. K., Unal, E. A., & Yener, U. N. A. L. (2017). The effect of firm size on profitability: evidence from Turkish manufacturers. Journal of Business Economics and Finance, 6(4), 301-308. https://doi.org/10.17261/Pressacademia.2017.762
Park, E., & Kim, W. H. (2020). The effect of inventory turnover on financial performance in the US restaurant industry: The moderating role of exposure to commodity price risk. Tourism Economics, 1354816620923860. https://doi.org/10.1177/1354816620923860
Pham, K. X., Nguyen, Q. N., & NGUYEN, C. V. (2020). Effect of Working Capital Management on the Profitability of Steel Companies on Vietnam Stock Exchanges. The Journal of Asian Finance, Economics, and Business, 7(10), 741-750. https://doi.org/10.13106/jafeb.2020.vol7.n10.741
Seth, H., Chadha, S., Sharma, S. K., & Ruparel, N. (2021). Exploring predictors of working capital management efficiency and their influence on firm performance: An integrated DEA-SEM approach. Benchmarking: An International Journal, 28(4), 1120–1145. https://doi.org/10.1108/BIJ-05-2020-0251
Siele, K. C., & Tibbs, C. Y. (2019). Accounts receivable management and financial performance of Kericho Water and Sanitation Company Limited, Kericho, Kenya. International Academic Journal of Economics and Finance, 3(3), 1-17.
Soboleva, Y. P., Matveev, V. V., Ilminskaya, S. A., Efimenko, I. S., Rezvyakova, I. V., & Mazur, L. V. (2018). Monitoring of businesses operations with cash flow analysis. International Journal of Civil Engineering and Technology, 9(11), 2034.
Wambia, W. O., & Jagongo, A. (2020). The effects of working capital management practices on the financial performance of insurance companies in Kenya. International Academic Journal of Economics and Finance, 3(5), 103-120.
Yakubu, I. N., Alhassan, M. M., & Fuseini, A. A. (2017). The impact of working capital management on corporate performance: Evidence from listed non-financial firms in Ghana.
Ahmed, A. Y., & Mwangi, L. W. (2022). Working Capital Management and Financial Performance of Small and Medium Enterprises in Garissa County, Kenya. International Journal of Current Aspects in Finance, Banking and Accounting, 4(1), 56-71. https://doi.org/10.35942/ijcfa.v4i1.229
Aluoch, M. O. (2021). Corporate Governance, Financial Characteristics, Macroeconomic Factors and Financial Performance of Agricultural Firms Listed on the Nairobi Securities Exchange, Kenya. https://doi.org/10.19044/esj.2021.v17n19p71
Amanda, R. I. (2019). The impact of cash turnover, receivable turnover, inventory turnover, current ratio and debt to equity ratio on profitability. Journal of research in management, 2(2). https://doi.org/10.32424/jorim.v2i2.66
Aytac, B., Hoang, T. H. V., Lahiani, A., & Michel, L. (2020). Working capital management and profitability of wine firms in France: an empirical analysis. International Journal of Entrepreneurship and Small Business, 41(3), 368-396. https://doi.org/10.1504/IJESB.2020.110803
Chamberlain, G. (1982). Multivariate regression models for panel data. Journal of econometrics, 18(1), 5-46. https://doi.org/10.1016/0304-4076(82)90094-X
Chang, C. (2018). Cash conversion cycle and corporate performance: Global evidence. International Review of Economics & Finance, 56(2), 568–581. https://doi.org/10.1016/j.iref.2017.12.014
Cont, R., Kotlicki, A., & Valderrama, L. (2020). Liquidity at risk: Joint stress testing of solvency and liquidity. Journal of Banking & Finance, 118, 105871. https://doi.org/10.1016/j.jbankfin.2020.105871
Dan, P. (2020). Accounts receivable management and corporate performances: empirical evidence from quoted manufacturers in Nigeria.
Das, S. (2019). Cash flow ratios and financial performance: a comparative study. Accounting, 5(1), 1-20. https://doi.org/10.5267/j.ac.2018.6.004
Dechow, P. M., Kothari, S. P., & Watts, R. L. (1998). The relation between earnings and cash flows. Journal of accounting and Economics, 25(2), 133-168. https://doi.org/10.1016/S0165-4101(98)00020-2
El Bernoussi, R., & Rockinger, M. (2019). Rebalancing with Transaction Costs: Theory, Simulations, and Actual Data. Simulations, and Actual Data (November 29, 2019). https://doi.org/10.2139/ssrn.3495461
Fernández‐López, S., Rodeiro‐Pazos, D., & Rey‐Ares, L. (2020). Effects of working capital management on firms' profitability: evidence from cheese‐producing companies. Agribusiness, 36(4), 770-791. https://doi.org/10.1002/agr.21666
Gerio, P. J., Ondiek, B. A., & Tibbs, C. Y. (2020). Influence of financing on financial performance of agricultural firms listed on Nairobi Securities Exchange. Reviewed Journal International of Financial Management, 2(1), 1-9.
Ghoshal, S., & Moran, P. (1996). Bad for practice: A critique of the transaction cost theory. Academy of management Review, 21(1), 13-47. https://doi.org/10.2307/258627
Godswill, O., Ailemen, I., Osabohien, R., Chisom, N., & Pascal, N. (2018). Working capital management and bank performance: Empirical research of ten deposit money banks in Nigeria. Banks & bank systems, 13(2), 49-61. https://doi.org/10.21511/bbs.13(2).2018.05
Haralayya, B. (2021). Working Capital Management at TVS Motors, Bidar. Iconic Research And Engineering Journals, 4(12), 255-265.
Hossain, M. S., & Saif, A. N. M. (2019). Impact of firm size on financial performance of banking companies in Bangladesh. Journal of Banking & Financial Services, 11(2), 143-160.
Hussain, S., Nguyen, V. C., Nguyen, Q. M., Nguyen, H. T., & Nguyen, T. T. (2021). Macroeconomic factors, working capital management, and firm performance—A static and dynamic panel analysis. Humanities and Social Sciences Communications, 8(1), 1-14. https://doi.org/10.1057/s41599-021-00778-x
Kasozi, J. (2017). The effect of working capital management on profitability: A case of listed manufacturers in South Africa. Investment management and financial innovations, 14(2), 336-346. https://doi.org/10.21511/imfi.14(2-2).2017.05
Kevser, M., & Leyli, E. B. (2019). The relationship between the ownership structure of banks and their financial performance: empirical research for Turkey. Ekonomski horizonti, 21(2), 111-129. https://doi.org/10.5937/ekonhor1902111K
Kimutai, N. H., & Muigai, R. G. (2018). Effect of working capital management on the financial performance of small and medium enterprises in Nairobi County, Kenya. Journal of International Business, Innovation and Strategic Management, 2(3), 126-146.
Kinuthia, D. N., Maimba, J. K., & Mwangi, L. W. (2020). Working Capital Management and Financial Performance of Listed Manufacturers in Kenya. International Journal of Business Management and Finance, 3(2).
Kiyotaki, N., & Moore, J. (2019). Liquidity, business cycles, and monetary policy. Journal of Political Economy, 127(6), 2926-2966. https://doi.org/10.1086/701891
Le, H. L., Vu, K. T., Du, N. K., & Tran, M. D. (2018). Impact of working capital management on financial performance: The case of Vietnam. International Journal of Applied Economics, Finance and Accounting, 3(1), 15-20. https://doi.org/10.33094/8.2017.2018.31.15.20
Liman, M., & Mohammed, A. (2018). Operating cash flow and corporate financial performance of listed conglomerate companies in Nigeria. Journal of Humanities and Social Science, 23(2), 1-11. https://doi.org/10.22452/ajba.vol11no1.4
Linh, N. T. P., & Mohanlingam, S. (2018). The effects of cash conversion cycle on profitability: An insight into the agriculture and food industries in Thailand. Asian Journal of Business and Accounting, 11(1), 97-119.
Miller, M. H., & Orr, D. (1966). A Model of the Demand for Money by Firms. The Quarterly journal of economics, 80(3), 413-435. https://doi.org/10.2307/1880728
Muhindi, K. A., & Ngaba, D. (2018). Effect of firm size on financial performance on banks: Case of commercial banks in Kenya. International Academic Journal of Economics and Finance, 3(1), 175-190.
Mun, S. G., & Jang, S. (2017). Working capital, cash holding, and profitability of restaurant firms. International Journal of Hospitality Management, 48(1), 1–11. https://doi.org/10.1016/j.ijhm.2015.04.003
Munene, F. (2018). Accounts Receivable Management and Financial Performance of Embu Water and Sanitation Company Limited, Embu County, Kenya. Unpublished Thesis, University of Nairobi.
Munene, F., & Tibbs, C. Y. (2018). Accounts receivable management and financial performance of Embu Water and Sanitation Company Limited, Embu County, Kenya. International Academic Journal of Economics and Finance.
Nai-Chiek, A. I. K., & Peck-Ling, T. (2019). Working capital management and financial performance of Malaysian construction sector companies. Journal of Contemporary Issues and Thought, 9, 86-94. https://doi.org/10.37134/jcit.vol9.9.2019
Nguyen, A. H., Pham, H. T., & Nguyen, H. T. (2020). Impact of working capital management on firm's profitability: Empirical evidence from Vietnam. The Journal of Asian Finance, Economics and Business, 7(3), 115-125. https://doi.org/10.13106/jafeb.2020.vol7.no3.115
Ochieng, M. R. M., Jagongo, P. A. O., & Ndede, P. F. W. Working Capital Management and Financial Performance of Manufacturing and Allied Category of Firms Listed on the Nairobi Securities Exchange, Kenya.
Ogunlade, O., Oseni, M., & Adeyemi, M. A. (2021). A Panel Study of Working Capital Management and Financial Performance of Nigeria’s Manufacturers. Indiana Journal of Economics and Business Management, 1(1), 25-31.
Okoror, J. A., Mainoma, M. A., Aruwa, S. A. S., & Uwaleke, U. (2022). Working Capital and Firm Financial Performance in Listed Manufacturers in Nigeria. https://doi.org/10.26765/DRJMSS30557172
Olaoye, S. A., & Okunade, R. A. (2020). Working Capital Management and Profitability of Listed Manufacturers in Nigeria. Journal of Economics, Management and Trade, 63-69. https://doi.org/10.9734/jemt/2020/v26i730275
Oyieko Osebe, M. (2018). An Evaluation of The Effect of Cash Flow Management Activities on Financial Performance of Manufacturers Listed on Nairobi Securities Exchange (Doctoral dissertation, Kisii University).
Ozcan, I. S. I. K., Unal, E. A., & Yener, U. N. A. L. (2017). The effect of firm size on profitability: evidence from Turkish manufacturers. Journal of Business Economics and Finance, 6(4), 301-308. https://doi.org/10.17261/Pressacademia.2017.762
Park, E., & Kim, W. H. (2020). The effect of inventory turnover on financial performance in the US restaurant industry: The moderating role of exposure to commodity price risk. Tourism Economics, 1354816620923860. https://doi.org/10.1177/1354816620923860
Pham, K. X., Nguyen, Q. N., & NGUYEN, C. V. (2020). Effect of Working Capital Management on the Profitability of Steel Companies on Vietnam Stock Exchanges. The Journal of Asian Finance, Economics, and Business, 7(10), 741-750. https://doi.org/10.13106/jafeb.2020.vol7.n10.741
Seth, H., Chadha, S., Sharma, S. K., & Ruparel, N. (2021). Exploring predictors of working capital management efficiency and their influence on firm performance: An integrated DEA-SEM approach. Benchmarking: An International Journal, 28(4), 1120–1145. https://doi.org/10.1108/BIJ-05-2020-0251
Siele, K. C., & Tibbs, C. Y. (2019). Accounts receivable management and financial performance of Kericho Water and Sanitation Company Limited, Kericho, Kenya. International Academic Journal of Economics and Finance, 3(3), 1-17.
Soboleva, Y. P., Matveev, V. V., Ilminskaya, S. A., Efimenko, I. S., Rezvyakova, I. V., & Mazur, L. V. (2018). Monitoring of businesses operations with cash flow analysis. International Journal of Civil Engineering and Technology, 9(11), 2034.
Wambia, W. O., & Jagongo, A. (2020). The effects of working capital management practices on the financial performance of insurance companies in Kenya. International Academic Journal of Economics and Finance, 3(5), 103-120.
Yakubu, I. N., Alhassan, M. M., & Fuseini, A. A. (2017). The impact of working capital management on corporate performance: Evidence from listed non-financial firms in Ghana.
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Published
2023-03-28
How to Cite
Githiga , L. ., & Koori , . J. M. (2023). Working Capital Management and Financial Performance of Agricultural Firms Listed on Nairobi Securities Exchange, Kenya. Journal of Finance and Accounting, 7(1), 116–138. https://doi.org/10.53819/81018102t4127
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