Abstract
Purpose: The purpose of this study was to establish to establish the influence of interest rate on the financial performance of agricultural firms listed at the Nairobi Securities Exchange.Methodology: The research design adopted was descriptive and causal (explanatory). A census approach was adopted and all the seven listed agricultural companies were taken as the population. The respondents' sample was from finance departments at all levels and 220 questionnaires were administered. Primary data was collected using questionnaires while the secondary data was collected using data collection sheets from the firms as well as from the Nairobi Securities Exchange and CMA records. The particular inferential statistic was regression and correlation analysis. Panel data methodology was employed using a multivariate regression model to test the hypotheses and link the variables.Results: The findings revealed that interest rate has a positive and significant relationship with ROA, ROE and EPS. In addition, the findings from the interaction of the independent variables and the interest rate revealed that interest rate moderate the effect of financial performance of agricultural firms listed at the Nairobi Securities Exchange.Unique contribution to theory, practice and policy: The study recommends that financial institutions and banks in Kenya should assess their clients which include agricultural firms listed in NSE while setting up interest rates policies, as ineffective interest rate policies can increase the level of interest rates and consequently cost of borrowing and negate financial performance of the borrowing firms. The study also recommends that the Central Bank should apply stringent regulations on interest rates charged by financial institutions so as to regulate their interest rate spread.
Highlights
1.1 Background of the StudyAgriculture development is the most critical sector for most Sub-Sahara African countries owing to its significance in food security and employment creation
Results show that 65 percent respondents who were the majority indicated that interest rate affect the financial performance. 13percent of the respondents indicated that they were not sure if interest rate affects financial performance while only 22percent indicated that interest rate does not affect financial performance
The respondents were requested to rank the impact of interest rate on financial performance indicators (ROA, return on equity (ROE) and earning per share (EPS))
Summary
1.1 Background of the StudyAgriculture development is the most critical sector for most Sub-Sahara African countries owing to its significance in food security and employment creation. The close relationship between the performance of agriculture and that of the economy obviously implies that agriculture must grow at a high rate for it to spur economic growth (Nyoro, Wanjala & Awour, 2012). For agriculture to grow at the expected rate, quality investments need to be put in place in key areas that have potential for growth. Agricultural companies have the potential of enhancing economic growth by providing raw materials and market for good quality produce in large quantities and being catalysts for increased production of farm produce. Most listed firms are excellent representatives of their businesses, the working rule of the market economy, which is the competition mechanism of the superior winning and the inferior washing, leads to the different financial performances. The financial performance of a firm usually reflects its development condition (Wang 2008)
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