LIQUIDITY AND PERFORMANCE OF SELECTED FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA
Purpose of the Study: The study sought to determine the effect of Liquidity on financial performance of selected firms listed at Nairobi Securities Exchange. Managers strive to achieve strategic objectives of firms, which include maximum returns on equity and assets. However, unanticipated macro and micro environmental factors may cause a firm to fall into financial distress which may negatively influence its financial performance. Manufacturing, Construction and Allied sectors play an important role in the implementation of vision 2030 and contribute immensely to the country’s economic growth.
Statement of the Problem: Declining returns and repeated losses reported by firms under these sectors have resulted in a slow growth by individual sectors as well as overall national economic growth. Poor performance has been attributed to cycles of financial distress problems affecting firms under manufacturing and construction sectors in the recent past. Identified knowledge gaps prompted the study to mainly determine the effect of financial distress measured in terms of liqduity on financial performance of selected firms listed at NSE.
Research Menthodology: Panel research design was employed by the study and census adopted due to the small population size. Secondary panel data collected from published financial statements of the entire 4 financially distressed firms listed under manufacturing, construction and allied sectors covering 10 years (2009-2018) were utilized. Descriptive and inferential statistics was used to analyze panel data with the aid of statistical software (STATA, version14). Panel regression analysis approach was used to test the hypotheses at 95% confidence level and diagnostic tests was performed before conclusions were drawn.
Result:Findings were presented in table format and supported by narrations. The study found that liquidity has a significant positive effect on the financial performance (return on assets and return on equity) in the selected firms listed at Nairobi Securities Exchange.
Conclusion: The study concludes that liquidity has a positive and significant effect on the financial performance (return on assets and return on equity) in the selected firms listed at Nairobi Securities Exchange.
Recommendation: The study recommends that listed firms at NSE should increase their liquidity to enhance their working capital thereby improving their performance and making the businesses sustainable. Liquidity can be increased by reducing the duration of time given to their customers to pay for goods sold to them as well as developing credit policies to define and reduce the credit period given to their customers (number of days given to debtors) to clear their balances.
Keywords: Financial Distress, Liquidity, Financial Performance, Nairobi Securities Exchange
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