FINANCIAL MANAGEMENT PRACTICES AND NON-PERFORMING LOANS AMONG MANUFACTURING AND ALLIED FIRMS LISTED AT NAIROBI SECURITIES EXCHANGE, KENYA
Abstract
Purpose of the study: The general objective of the study was to examine the financial management practices and Non- performing loans amongst manufacturing and allied firms in Kenya. The specific objectives were to examine the to determine the effect of liquidity decisions, financial decision, dividend decision and investment decision on non-performing loans amongst manufacturing and allied firms Nairobi securities exchange.
Problem statement: The general expectations is that manufacturing firms should practice prudent financial management practices in order for their businesses entities to be profitable and to be in a position to adhere to the debt service contracts with commercial banks. However majority of manufacturing firms in Kenya are not able to meet their debt obligations with commercial banks as and when they fall due hence leading to the high levels of Non –performing loans in commercial Banks that has a negative impact on the Economy.
Study methodology: This research employed causal design that relies on control variable. The study targeted all the 9 manufacturing firms listed in Nairobi Securities Exchange. The years to be covered were from 2010-2016. The research used census approach that requires the researcher to carry out survey of all the members of target population. The researcher used a document review guide to extract and compile the required secondary data for analysis from the financial statements. The secondary data encompassed panel data that consists of time series and cross-sections. Data collected for this research study was presented using tables, figures and graph to analyze the trend. Descriptive statistics that was used entails mean, and standard deviation.
Results of the study: Regression results showed that there was a negative and significant relationship between liquidity decision and non-performing loans (r=-0.7905, p=0.0239). Further, there was a negative and significant relationship between financing decision and non-performing loans (r=-0.1810, p=0.0150) a negative and significant relationship between dividend decision and non-performing loans (r=-0.2922, p=0.000) and a negative and insignificant relationship between investing decision and non-performing loans (r=-1.8588, p=0.2310).
Conclusion: The study concluded that liquidity decision, financing decision, and dividend decision were statistically significant while investing decision was not statistically significant on non-performing loans of manufacturing firms in Nairobi securities exchange
Recommendations: The study recommended on management of the manufacturing firms to realign and make decisions and policies closely guided by liquidity decision, financing decision dividend decision and investing decision as they are critical measures of non-performing loans so at to enhance performance.
Keywords: Financial Management Practices, Non-Performing Loans, Manufacturing and Allied Firms & Nairobi Securities Exchange
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