Financial Management Practices and Performance of Commercial and Services Companies Listed at Nairobi Securities Exchange, Kenya

Abstract

The listed firms’ contribution to the economies of countries such as Kenya is tremendous. Despite the contribution by the commercial and services companies listed at Nairobi Securities Exchange towards the economy of the country, majority have for long time been experiencing poor and declining performance and some have been suspended and even end up being delisted from the activities at Nairobi Securities Exchange in the last few years. The survival of businesses, companies and firms is a matter of global concern as much of their failure is mainly attributed to poor financial management approaches in the firms. Determining the effect of financial management practices and examining the effect of working capital management, cash budgeting, fixed asset management and capital structure on financial performance of companies listed at Nairobi Securities Exchange under commercial and services segment were respectively the general and specific objectives of this study. Trade–off theory, Contingency theory, Modigliani Miller capital structure theory and Fisher separation theorem were adopted in this study. This study adopted the positivism research philosophy concept that linked with objectivism concept. The study employed explanatory research design and the target population were eight commercial and service companies listed at NSE and were operational between the year 2009 and 2020. The study relied on secondary panel data which was obtained from the various sources such as financial statements and annual statements which were available at the firms’ websites and Nairobi Securities Exchange data. Descriptive as well as inferential analysis were utilized in analyzing the data. Descriptive statistics was able to produce trends, frequencies, means and standard deviations while inferential analysis entailed correlation and regression analysis. The study conducted the diagnostic tests namely normality, linearity, multicollinearity, unit root test, Heteroscedasticity, autocorrelation and Hausman tests. The diagnostic tests performed on the data gave an indication that there were no violations of the classical linear regression model assumptions and that data was not biased, had no inconsistencies or biased parameters. The key findings from the study were that working capital management, cash budgeting and fixed asset management have a positive and significant influence on the financial performance of commercial and services companies while capital structure negatively and insignificantly influenced the financial performance. The study concluded that working capital management, cash budgeting and fixed asset management positively and significantly affected financial performance while capital structure negatively and insignificantly affected financial performance of the companies listed at Nairobi Securities Exchange under commercial and services segment. The study recommends that firms have to ensure they have the required liquidity by ensuring that their assets and liabilities are well managed; entities have to ensure they have enough cash to meet their daily operations, finance their growth, ensure unexpected payments are met as well as sustained and firms have to ensure their non-current assets are well tracked and safeguarded in order to increase their fixed asset turnover ratios. Furthermore, the study recommends the firms to establish their optimal capital structure levels so as to ensure it positively influences the financial performance which can be achieved by ensuring the firms reach the optimal debt to equity ratios.