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

Abstract

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