Determinants of Financial Performance Of Manufacturing Firms in Kenya

Abstract

The general objective of the study was to assess the determinants of financial performance on manufacturing firms in Kenya. The objective of this study was to examine the determinants of financial performance of manufacturing firms in Kenya and was guided by the following specific objectives: Examine the effect of access to finance on financial performance of manufacturing firms in Kenya; Evaluate the effect of capital structure on financial performance of manufacturing firms in Kenya; Analyse the effect of cost of capital on financial performance of manufacturing firms in Kenya; Assess the effect of fiscal tax incentives on financial performance of manufacturing firms in Kenya and establish the effect of investment practice on financial performance of manufacturing firms in Kenya. The target population of the study being 741 manufacturing firms in Keya and a sample of 252 firms taken to be a representative of all manufacturing firms in Kenya. In order to collect data from the sampled respondents, cluster sampling was used to classify each of the twelve sub sectors into individual stratas. Simple random sampling procedure was then used to select the sample in order to ensure each and every firm in the target population was represented. The study adopted a survey design that was descriptive in collecting data. A structured questionnaire was distributed targeting manufacturing firms in Kenya. Statistical analysis was done using correlation and multiple regression model in order to establish the linear relationships between one or more variables and to test the significance of the relationships between the dependent and independent variables. The data analysis was done using Statistical Package for Social Scientists (SPSS) version 24 to facilitate computation of descriptive statistics, multiple regression and Pearson correlation to get answers to the study questions. To test the hypothesis for this study, the independent variables were regressed against financial performance as the dependent variable. Inferential statistics such as Pearson’s correlation, ANOVA and multiple regression analysis were used for further analysis. The key findings were that determinants of financial performance individually had a positive influence on the financial performance of manufacturing firms. The overall results indicated that there was a significant linear relationship between access to finance and manufacturing firm’s financial performance. The results indicated a moderately significant linear relationship between capital structure and manufacturing firm’s performance. There was a significant positive relationship between cost of capital and manufacturing firm’s financial performance. There was a significant positive relationship between fiscal tax incentives and manufacturing firm’s financial performance. There was also a significant positive relationship between investment practice and manufacturing firm’s financial performance. After each determinant was tested individually it had showed a positive significance. Similarly, when all the determinants of financial performance were tested altogether it was established that they had a low significance. Managers who were consulted about these results attributed the low explanatory power of variables to stiff competition, quality of the product and government policies. The key recommendations are that managers need to adopt the determinants of financial performance according to their firm requirements in order to improve performance. The study assists policy makers in coming up with better policies on improvement of financial performance.