Determinants of Financial Performance of Firms Listed on the Rwanda Stock Exchange

Abstract

This study assessed the determinants of financial performance of companies listed on the Rwanda Stock exchange. The study was guided by the following research objectives: to appraise the effect of dividend policy on financial performance of firms listed on RSE, to identify the effect of capital structure on financial performance of firms listed on RSE, to evaluate the effect of corporate governance on financial performance of firms listed on RSE and to determine the effect of timely rendition of information on financial performance of firms listed on RSE. Both primary and secondary data were used by the study. The study adopted descriptive research design and the population was all the six companies listed in the Rwanda Stock Exchange (RSE). A census survey was conducted on all the six listed firms and purposive sampling technique was used to sample the respondents to participate in the study. Data was analyzed using descriptive statistics, correlation analysis and regression analysis using SPSS version 20. The study findings indicated that dividend policy, corporate governance and timely rendition affect positively ROA while capital structure affects negatively ROA. Furthermore, dividend policy, corporate governance and timely rendition positively affect ROE while capital structure negatively affects ROE. The regression results indicated that the relationship between dividend policy and both ROA and ROE is positive and significant , the relationship between capital structure and both ROA and ROE is negative and significant, the relationship between corporate governance and both ROA and ROE is positive but the relationship between corporate governance and ROA is significant while corporate governance is insignificantly related to ROE and finally the relationship between timely rendition and both ROA and ROE is positive and insignificant. The study recommends that firms listed at the RSE should improve their dividend policy as it leads to improved financial performance. The firms should operate under established and regularly observed dividend policy and also pays dividends in correlation with its value. The study also recommends that firms listed at the RSE should improve their capital structure and implement strategies that lead to a reduction in liquidity ratio as it leads to improved financial performance. The firms should keep its leverage level under control and have clear working capital management guidelines to avoid bankruptcy. Furthermore, the study recommends that firms listed at the RSE should improve their corporate governance as it leads to improved financial performance.