Effect of Working Capital Management Decisions on Financial Performance

Abstract

Collapse of companies in Kenya has been on the rise in the recent past. Far reaching endeavors to resuscitate these liquidating and ailing firms have generally been attributed on their corporate financial management decisions.  Multinationals and KTDA managed tea firms in Kenya have been performing poorly in the recent past where audited financial statements and reports revealed a warning signal on its financial performance. Specific objectives of the study were to determine the effect of the accounts receivables period, accounts payables period, inventory conversion period, cash conversion cycle, financing policy, investing policy and moderating effect of ownership structure on financial performance. The study illustrated that accounts receivables collection period is negatively related to return on assets (? = -0.1299, p=0.0160),  accounts payables payment period is negatively related to return on assets (? = -0.0843, p = 0.0070), inventory conversion period is negatively related to return on assets (?= -0.0623, p=0.0180), cash conversion cycle is negatively related to return on assets (? = -0.1107, p = 0.0030), financing policy is positively related to return on assets (? = 0.1589, p = 0.0000), investing policy is positively related to return on assets (? = 0.0291, p = 0.0000).

Keywords: {'name': 'Working capital, Accounts receivable, Accounts payables and Inventory'}

Authors & affiliations

Charles Kiprotich Yegon
Affiliation not supplied

Willy Muturi
Affiliation not supplied

Oluoch Oluoch
Affiliation not supplied

Deposited references

Supplied references, not a list of publications citing this article.

Afza, T. & Nazir, M. (2013). Impact of aggressive Working Capital Management on firms’ Financial performance. The IUP Journal of Applied Finance, 15(8), 20-30.

DOI: 10.5296/jmr.v4i2.1482

Arshad, Z. & Gondal, M. Y. (2017). Impact of Working Capital Management on Financial performance: A Case of the Pakistan Cement Industry. Interdisciplinary Journal of Contemporary Research in Business, 5 (2), 384-390.

Barako, D.G., Hancock, P. & Izan, H.Y. (2011). Relationship between corporate governance attributes and voluntary disclosures m annual reports: The Kenyan experience. Fin. Rep., Reg. Gov., 5: 1- 26.

Bhunia, A. & Das,A.(2016). Affiliation between Working Capital Management and Financial performance. Interdisciplinary journal of contemporary research in business, 3(9), 957-968

Binti & Saad (2014). The effect of market valuation and financial Performance of Firms listed in Malaysia. International Journal of Business and Management, Vol 5, No 11, 140-147.

Brigham, E. F. &Ehrhardt ,M. C. (2010. Financial Management: Theory and Practice, 11th Edition, South-Western College Publishers, New York.

DOI: 10.29302/oeconomica.2011.13.2.3

Butt, B. Z., Hunjra,I.H.& Rehma,.K.U.(2014). Financial Management Decisions and their Impact on Organizational Performance. World Applied Sciences Journal, 9 (9), 997-1002.

Dongin, H. P. & Sum, J.T. (2014). The Relationship between Working Capital Management and company’s financial performance. International Journal of Finance and Economic, 3(5), 62-71.

Dong, H. P. & Su, IT. (2014). The Relationship between Working Capital Management and Financial Performance. International Research Journal of Finance and Economic, 3(5), 62-71.

DOI: 10.1108/10569210480000179

DOI: 10.1108/19355181200500007

Gakure, R., Cheluget, K. Onyango, J., & Keraro (2016). Working Capital Management and financial performance of manufacturing firms listed at the NSE. Prime Journal of Business Administration and Management, 2(9), 680-686.

Gill, Biger & Mathur (2014). The Relationship between WC Management and financial performance: Evidence from the United States of America. Economics and Business Journal, 4 (2), 1-9.

Greene, W.H. (2012). Econometric Analysis (6th ed.). Upper Saddle River, N.J.: Prentice Hall

Gujarati (2010). Basic Econometrics, Fourth Edition. McGraw-Hill Companies. Hall, M., and Weiss.

Gul, Khan & Raheman (2017). Working Capital Management and performance of SME sector. European Journal of Business and management, 5(1), 60-68.

DOI: 10.1002/csr.177

Javed,B. & Akhtar,S. (2016). Inter Relationships between Capital Structure and Financial Performance, Firm Size and Growth: Comparison of industrial sector in KSE: European Journal of Business and Management, 4(15), 148-157.

Jayarathne, T. A., (2018). Impact of Working Capital Management on Financial performance: Evidence from Listed Companies in Sri Lanka, ICME, 1 (1), 269-274.

DOI: 10.5539/jms.v2n2p75

Karduman, (2015). The Relationship between Working Capital Management and Financial performance: Evidence from an Emerging Market. International Research Journal of Finance and Economics, 62(2015), 61-67.

DOI: 10.1016/S0956-5221(00)00021-X

DOI: 10.2307/30040615

Makori, D. M. & Jagongo, A. (2017). Working Capital Management and Firm Financial Performance: Empirical Evidence from Manufacturing and Construction Firms listed on NSE Kenya. International Journal of Accounting and Taxation, 1 (1), 1-14.

Maradi, M., Salehi, M., & Arianpoor, A. (2016). A comparison of Working Capital Management of chemical and medicine listed companies in Tehran Stock Exchange. International Journal of Business and Behavioral Science, 2 (5), 62-78.

Mathuva, D.R., (2014). The Influence of Working Capital Management Components on Firm’s Financial Performance: For firms listed at NSE. Research Journal of Business Management, 4, 1-11.

Mbatha, K, Z., (2016). The effect of ownership structure on the financial performance of sugar Companies in Kenya. Retrieved from University of Nairobi Digital Repository.

Memba, F., & Nyanumba, J.A. (2017) Causes of Financial Distress: A Survey of Firms Funded by Industrial and Commercial Development Corporation in Kenya. Interdisciplinary Journal of Contemporary Research In Business, 4, (12), 1171-1185.

Mousavi, Z., & Jari, A. (2016). The Relationship between Working Capital Management and Firm Performance: Evidence from Iran. International Journal of Humanities and Social Science, 2 (2), 1-7.

DOI: 10.3923/ibm.2011.279.286

Mukras,M.S.& Oginda,M.N.(2017). Ownership Concentration and financial performance of Listed Firms in Kenya: An Econometric Analysis Using Panel Data. European Scientific Journal, 9(32), 194-211.

Mwaura, Nyabundi & Muku (2005). Situation analysis of the small-scale tea growers and their contribution at the local auction market in Kenya. Tea (2): 35-45.

Naser, K., Nuseibel, R. & Al-Hadeya, A. (2017). Working Capital Management and Financial Performance on manufacturing sector in Sri Lanka. European Journal of Business Management, 4(15), 23-30.

Nazir & Afza (2013). Aggressive Working Capital Management and Firms' Financial Performance: The Journal of Applied Finance, 15(7), 20- 30.

Niresh, J. (2016). Working Capital Management & financial performance of Manufacturing Sector in Sri Lanka. European Journal of Business and Management, Vol 4, No.15,23-30.

Njanja, L. W. & Pellisier,R. (2015).The integrative effects of various management strategies in the performance of MSMES. International business and management journal, 2 (2), 105-116.

DOI: 10.1108/13217341111181078

Nyabwanga, Ojera, Lumumba, Odondo & Otieno (2016). Effects of Working Capital Management Decisions on financial performance: SME’s in Kisii County, Kenya. Africa Journal of Management, 5 (17), 5807- 5817.

Ogundipe, Idowu & Ogundipe (2016). Working Capital Management, Firms’ Performance and Market Valuation in Nigeria. International Journal of Social and Human Science, 6, 143-147.

Ongore (2015).The Relationship between Ownership structure and Firm Performance: An Empirical Analysis of Listed Companies in Kenya. African journal of business management vo1.5.

Raheman,A. & Mohamed ,N. (2012). Working Capital Management and Financial performance Case of Pakistani firms. International Review of Business Research Paper,3(1), 279-300.

DOI: 10.1177/097215091001200110

Uyar, A. 2013. The Relationship of Cash Conversion Period and Financial Performance: An Investigation in Turkey. Global Research Journal of Finance and Economics, 25:187-194.

Titman & Keown (2015). Financial Management: Principles and Applications, 11th Edition. Pearson International Edition.

Zariyawati, Annuar,Taufiq, & Rahim (2012). Working Capital management and corporate Performance: Case of Malaysia. Journal of Modern Accounting, 5 (11), 47-54.