FINANCING OPTIONS AND FINANCIAL PERFORMANCE OF APPAREL AND TEXTILE MANUFACTURING COMPANIES IN NAIROBI, KENYA
Abstract
Purpose of the Study: The main objective of this study was to examine the effect of financing option on financial performance of apparel and textile manufacturing companies in Nairobi.
Statement of the Problem: Despite the government efforts in improving macroeconomic conditions and market de-regulation, the financial performance of the manufacturing sector in Kenya according to the Kenya Economic report 2018 regarding contribution to GDP has remained below the medium-term plan and Vision 2030 targets.
Methodology: The study employed a descriptive research design and targeted top and middle level managers in the 39 apparel and textile manufacturing companies in Nairobi. The study used both stratified sampling and purposive sampling techniques to select a sample size of 156 respondents. The study used questionnaire to collect primary data from the respondents. The data was analyzed with the aid of SPSS using both descriptive statistics and inferential statistics. The findings were presented on tables, charts and bars.
Result: The study found that equity financing had a positive and significant effect on financial performance of apparel and textile manufacturing companies (β =.210, p=.006<.05), debt financing had a positive but insignificant effect on financial performance of apparel and textile manufacturing companies (β =.042, p=.603>.05), retained earnings had a positive and significant effect on financial performance of apparel and textile manufacturing companies (β=.420, p=.000<.05). Finally, the study found that crowd financing as financing option had a positive and significant effect on financial performance of apparel and textile manufacturing companies (β=.165, p=.038<.05).
Conclusion: The study concluded that financing option acts as a basis of investment decision and a company’s financial performance is extensively influenced by the proposition of mix financing and the choice of the appropriate mix of different sources of short and long term funds is one of the critical decision needs that have to be taken by the management of the company.
Recommendation: The study recommended that the government should be instrumental in offering loan facilities for textile and apparel industries as currently very companies have used this method of financing. Such available loans are for start-ups and it may be important to create such financing options for these companies too.
Keywords: Financing options Financial Performance Apparel, Textile, Manufacturing, Equity, Debt, Retained, Crowd financing.
References
Achieng, B. O., Muturi, W., & Wanjare, J. (2018). Effect of Equity Financing Options on Financial Performance of Non-Financial Firms Listed at the Nairobi Securities Exchange, Kenya. Applied Economics and Finance, 5(4), 160-173.
Ahmad, K., &Zabri, S. M. (2016). The application of non-financial performance measurement in Malaysian manufacturing firms. Procedia Economics and Finance, 35, 476-484.
Allini, A., Rakha, S., McMillan, D. G., & Caldarelli, A. (2018). Pecking order and market timing theory in emerging markets: The case of Egyptian firms. Research in international business and finance, 44, 297-308.
Andayi, G. M. (2020). Expanding Kenya’s Domestic Textiles and Apparel Industry: Lessons from Rwanda’s Secondhand Clothing Market.
Ang, T. C. C., Chang, X. S., Hu, X., & Verwijmeren, P. (2019). Equity Financing, Equity Lending, and Price Pressure: The Case of DRIP Arbitrage. Equity Lending, and Price Pressure: The Case of DRIP Arbitrage (November 15, 2019).
Baker, M., &Wurgler, J. (2002). Market timing and capital structure. The journal of finance, 57(1), 1-32.
Bassey, B. E., Edom, G. O., & Aganyi, A. A. (2016). Assessing the Impact of Retained Profit on Corporate Performance: Empirical Evidence from Niger Mills Company, Calabar-Nigeria. European Journal of Business and Innovation Research, 4(1), 36-47.
Belo, F., Lin, X., & Yang, F. (2019). External equity financing shocks, financial flows, and asset prices. The Review of Financial Studies, 32(9), 3500-3543.
Bulle, H. I. (2017). Financial Management and Financial Performance of Firms Listed under Manufacturing and Allied Sector at the Nairobi Securities Exchange, Kenya. Kenyatta University.
Candelise, C. (2015). Crowdfunding and the Energy Sector. Exchange.
Carvalho, D. (2018). How do financing constraints affect firms’ equity volatility? The Journal of Finance, 73(3), 1139-1182.
Cheptum, F. J. (2019). The Effect of Credit Collection Practices on Financial Performance of Manufacturing Firms in Kenya. International Journal of Finance and Accounting, 4(1), 31-55.
Cole, R. A., & Sokolyk, T. (2018). Debt financing, survival, and growth of start-up firms. Journal of Corporate Finance, 50, 609-625.
Cooper, D. R., & Schindler, P. S. (2014). Business Research Methods.© The McGraw− Hill Companies.
Diaconu, M. (2017). Private equity market developments in central and Eastern Europe. Theoretical & Applied Economics, 24(2).
Farooq, M. A., & Masood, A. (2016). Impact of financial leverage on value of firms: Evidence from cement sector of Pakistan. Research Journal of Finance and Accounting, 7(9), 73-77.
Frank, M. Z., &Goyal, V. K. (2004). The effect of market conditions on capital structure adjustment. Finance Research Letters, 1(1), 47-55.
García Muñoz, L. M., de Lope, F., & Palomar, J. E. (2019). A Retained Earnings‐Consistent KVA Approach and the Impact of Taxes. Wilmott, 2019(101), 62-69.
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of financial economics, 60(2-3), 187-243.
Harelimana, J. B. (2017). Effect of debt financing on business performance: A comparative study between I&M Bank and Bank of Kigali, Rwanda. Global Journal of Management and Business Research.
Hovakimian, A. (2006). Are observed capital structures determined by equity market timing? Journal of Financial and Quantitative analysis, 221-243.
Huang, R., & Ritter, J. R. (2005). Testing the market timing theory of capital structure. Journal of Financial and Quantitative Analysis, 1, 221-246.
Kamau, J. N. (2016). The relationship between capital structure and financial performance of insurance companies in Kenya (Doctoral dissertation, University of Nairobi, Kenya).
Khan, A. B., Zulfiqar, A. S., & Shah, S. Z. A. (2015). The impact of retained and distributed earnings on future profitability and stock returns in Pakistan. International Research Journal of Finance and Economics, 84, 141-148.
Kirimi, P. N. (2017). Effect of Debt Finance on Financial Performance of Savings and Credit Cooperative Societies in Maara Sub-county, TharakaNithi County, Kenya. International Journal of Accounting, Finance and Risk Management, 2(5), 113-130.
Kubai, F. (2016). The effect of capital structure on the financial performance of manufacturing firms in Kenya (Doctoral dissertation, University Of Nairobi).
Kuppuswammy, V., & Roth, K. (2016). Research on the current state of crowdfunding: the effect of crowdfunding performance and outside capital. US Small Business Administration Office of Advocacy White Paper.
Macht, S. A., & Weatherston, J. (2014). The benefits of online crowdfunding for fund‐seeking business ventures. Strategic Change, 23(1‐2), 1-14.
Mahajan, A., & Tartaroglu, S. (2008). Equity market timing and capital structure: International evidence. Journal of Banking & Finance, 32(5), 754-766.
Mazen, M. (2017). Impact of debt on profitability. The Journal of Risk Finance.
Mburu, M. W., & Ngatia, C. N. (2019). Factors Affecting Lease Financing In the Manufacturing Industry In Kenya. International Journal of Business Management and Finance, 1(1).
Mutua, L. M., & Atheru, G. K. (2020). Capital Structure and Financial Performance of Companies listed under Manufacturing and Allied Sector at Nairobi Securities Exchange in Kenya. Journal of Finance and Accounting, 4(1), 24-38.
Muturi, W., & Njeru, A. (2019). Effect of Equity Finance on Financial Performance of Small and Medium Enterprises in Kenya. International Journal of Business and Social Science, 10(5).
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have informationthat investors do not have (No. w1396). National Bureau of Economic Research.
Njagi, I. K., Maina, K. E., & Kariuki, S. N. (2017). Equity financing and financial performance of small and medium enterprises in Embu Town, Kenya.
Onyango, L. (2018). An analysis of the effect of crowdfunding platforms in enhancing the financing sources for micro, small and medium enterprises (MSMEs) in Kenya (Doctoral dissertation, Strathmore University).
Pandey, A., & Singh, M. (2015). Capital structure determinants: a literature review. African Journal of Accounting, Auditing and Finance, 4(2), 163-176.
Raude, J. M., Wesonga, W., & Wawire, P. (2015). Equity financing strategy and the performance of small and medium enterprises in Kenya. International journal of business and management, 10(4), 193.
Saifullahi, M. A., Yusha'u, K. S., & Ahmed, K. (2019). Determinants of Debt Financing For Listed Industrial Goods Firms in Nigeria. International Journal of Arts, Languages and Business Studies, 2(2).
Salim, N., Ab Rahman, M. N., & Wahab, D. A. (2019). A systematic literature review of internal capabilities for enhancing eco-innovation performance of manufacturing firms. Journal of cleaner production, 209, 1445-1460.
Thuranira, M. G. (2014). The effect of retained earnings on the returns of firms listed at the Nairobi Securities Exchange. URI: http://hdl. Handle. Net/11295, 74777.
Thuranira, M. G. (2014). The effect of retained earnings on the returns of firms listed at the Nairobi Securities Exchange (Doctoral dissertation, University of Nairobi).
Wafula, L. N. (2018). The Relationship between Profitability and Capital Structure of Small and Medium Enterprises in Nairobi County (Doctoral dissertation, university of Nairobi).
