Abstract

Financial distress is a common global phenomenon among the corporate entities. Locally, there is overwhelming evidence of firms that have undertaken financial restructuring, delisted from the exchange market, gone into receivership and subsequently liquidated on account of financial distress. This study therefore set out to examine the way in which management of working capital affects financial distress of non-financial firms listed at the Nairobi Securities exchange. In fulfilling this objective, the study sought to establish how cash management, inventory management and accounts receivables management effects financial distress of non-financial firms listed at Nairobi Securities Exchange. The free cash flows theory, Precautionary motive theory, financing advantage theory and liquidity theory formed the theoretical basis of the study. The study adopted longitudinal research design and collected secondary data over ten years period (2009-2018) from a census of the 40 non-financial firms listed in Nairobi Securities exchange. Descriptive statistical analysis was used to obtain the initial overview of the data collected. Inferential statistical analysis was undertaken using the F and t-tests at 95% confidence level. The study found that cash management had a positive and significant effect on the firms’ distress index. Further, the study revealed that inventory holding period was negatively and significantly related to the firms’ financial distress index. The study also showed that suppliers’ payment period had a positive and significant effect on financial distress indicator. The study however depicted a negative but insignificant relationship between receivables period and financial distress. The study recommended that the management of non-financial listed firms should ensure appropriate management of working capital components in order to guard against instances of corporate financial distress 
 
 JEL: O15; J24; L20
 
 <p> </p><p><strong> Article visualizations:</strong></p><p><img src="/-counters-/edu_01/0778/a.php" alt="Hit counter" /></p>

Highlights

  • Continuity of listed companies is critical to the performance of the stock market and the economy at large (Maina and Sakwa, 2012). Chogii, Aduda & Murayi (2014) noted that deep market capitalization is inextricably related to economic development and is highly dependent on the financial viability of the listed firms. Olaleye, Memba and Riro (2015) averred that the growing stock market is an encouragement to investors' confidence and plays a key role in attracting the much-needed foreign direct investment (FDI)

  • 1.2 Objectives and Significance The primary objective of the study was to establish the effect of working capital management on financial distress among the non-financial firms listed in Nairobi Securities Exchange (NSE)

  • The study investigated the effect of the 3 components of working capital management i.e. Cash, accounts receivables and inventory on financial distress of the non-financial firms listed in NSE

Read more

Summary

Introduction

Continuity of listed companies is critical to the performance of the stock market and the economy at large (Maina and Sakwa, 2012). Chogii, Aduda & Murayi (2014) noted that deep market capitalization is inextricably related to economic development and is highly dependent on the financial viability of the listed firms. Olaleye, Memba and Riro (2015) averred that the growing stock market is an encouragement to investors' confidence and plays a key role in attracting the much-needed foreign direct investment (FDI). Continuity of listed companies is critical to the performance of the stock market and the economy at large (Maina and Sakwa, 2012). Chogii, Aduda & Murayi (2014) noted that deep market capitalization is inextricably related to economic development and is highly dependent on the financial viability of the listed firms. Financial distress is a common phenomenon among business enterprises around the world. Ahmad (2013) explained that this phenomenon is strongly associated with a lack of optimal financial structure among the affected firms. Whitaker (1999) stated that financially distressed firms are generally associated with insufficient cash flows, volatile profitability and decline in assets-liability ratio. Rajan and Zingales (1995) noted that the financing factor is crucial in determining the interim financial performance of the firm and its long run survival

Objectives
Methods
Results
Conclusion
Full Text
Paper version not known

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call