Determinants of Cash Flow Management Practice on Performance of Commercial Banks in Kenya

Gregory Namusonge ,Elizabeth Nambuswa Makokha ,Wilson Aggrey Ogama Kitere

doi:10.7176/ejbm/11-17-03

Abstract

The purpose of the study was to analyze the determinants of cash flow management on performance practice of commercial banks in Kenya. Specific objectives of the study were to determine the effect of cash forecasting practice on performance of commercial banks in Kenya, to identify the effect of cash accounting practice on performance of commercial banks in Kenya. The study was based on Portfolio theory of Cash Management, Cash Management theory, Transaction Cost theory, Free Cash Flow theory and pecking order theory. The study used mixed research design which involves collecting and analyzing both qualitative and quantitative data. The target population of the study comprised the 6913 employees in management and supervisory cadres in commercial banks in Kenya. Stratified sampling technique was used to identify the sample size in every stratum. Data collection instruments were both structured and unstructured questionnaires. Data collection methods were both primary and secondary. The data was analyzed using Statistical Program for Social Sciences (SPSS) windows version 21.Multiple linear regression analysis was carried out to analyze the determinants of cash flow management on performance of commercial banks in Nairobi City County, Kenya. Pilot test was carried out for validity and reliability of research instruments. Regression analysis was carried out to test the significant levels of one variable to the other in the study. ANOVA was carried out to test the hypotheses of the study. The study is significant to the banking sector and the government of Kenya in formulation of different financial decisions and in policy making. The results of the study indicate that all the independent variable have a significant positive effect on performance of Commercial banks Kenya. The findings revealed that commercial banks in Kenya carry out cash flow forecasting practice and that inflation rates influence interest rates in commercial banks in Kenya. Cash accounting practice was found to be positively related to performance of commercial banks in Kenya. The study recommends that the management of commercial banks in Kenya should be enhanced through frequent audits to be able to curb interest rates especially the unanticipated inflation which adversely affects the functions of money by undermining wealth holders’ confidence in its ability to be used as medium of exchange and store of value. Keywords: Cash Accounting, Financial Performance DOI : 10.7176/EJBM/11-17-03 Publication date :June 30 th 2019

Highlights

In 2008, the world economy faced its most dangerous crisis since the Great depression of the 1930s
From t-test analysis, the t -value was found to be 2.354 and the ρ -value 0.017. This null hypothesis was rejected because ρ
5.0 Conclusion and Recommendation In conclusion, basing on the findings, Cash accounting practice was found to be positively related to performance of commercial banks in Kenya

Summary

Introduction

In 2008, the world economy faced its most dangerous crisis since the Great depression of the 1930s. The contagion, which began in 2007 when sky- high home prices in the United States turned decisively downward, spread quickly, first to the U.S financial sector and to financial markets overseas. The carnage was not limited to the financial sector, as companies that normally rely on credit suffered heavily. Many banks ran out of cash in 2008 and 2009 as bad debts, lack of short term financing, and poor profitable opportunities combined to cause the most severe crisis in the financial sector for decades. Canada’s financial system successfully navigated the global financial crisis, and stress tests suggest that major financial institutions would continue to be resilient to credit, liquidity, and contagion risks arising from a severe scenario. Domestic banks have reduced their commercial real estate exposures, but international investors have picked up the slack and account for more than one half of commercial real estate financing flows IMF, (2014)

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