INFLUENCE OF CASH FLOW TRENDS ON SHAREHOLDERS RETURNS AMONG MANUFACTURING AND ALLIED COMPANIES LISTED IN THE NAIROBI SECURITIES EXCHANGE

Abstract

The study investigated the effect of cash flow trends on shareholders returns among listed manufacturing and allied companies in Kenya. Over the recent times most manufacturing and allied firms in Kenya have been showing serious cash flow difficulties. Some of those firms include Mumias Sugar Company, Eveready East African Limited, Unga group, frame tree holding group, Kenya Orchard among others firms within manufacturing and allied sector. Most these firms were unable to generate adequate cash flows from their operation, financing and investing activities. For example, Mumias sugar was unable to meet its operating cost including paying famers, but through the injection of money by the Kenyan government the company resume its operation but still struggling in debts. Eveready East Africa has also been struggling to meet its operations and its performance has significantly declined. Therefore, the specific objectives of the study were to examine the influence of cash from operating activities, investing activities, and financing activities on shareholders’ returns. The free cash flow theory, Keynesian theory of money, Millers and Orr’s cash management model, and Baumol model of cash management guided the study. The study adopted a descriptive research design. The target population comprised accounts and finance staff working with manufacturing and allied firms listed in the Nairobi Security Exchange. The study population constituted 227 such staff. A sample of 54 respondents was obtained from the sampling frame using stratified random sampling technique. The data collected were processed and analyzed using Statistical Package for Social Science Version 24 software. The results of the analysis were presented using tables. The study found that cash flows from operating activities had marginal consequences on returns of shareholders. However, it was established that cash flows from both investing (t =3.849; p < 0.05) and financing (t=6.821; p < 0.05) activities significantly influenced shareholders’ returns. In general, cash flow trends were found to be important in relation to shareholders’ returns among listed manufacturing and allied firms in Kenya. The study concluded that whereas cash flows from operating activities were of less importance to shareholders’ returns, cash flows from investing and financing activities were highly important. The study recommended that manufacturing and allied firms should ensure that there is increased interest from investments. These firms are advised to increase investment in shares. The study further recommended that the foregoing firms should increase the payment of dividends