Working Capital Management, Firm Size and Stock Liquidity of Firms at Nairobi Securities Exchange, Kenya

Abstract

Globally stock liquidity plays a major role for firms’ stakeholders. Stock liquidity as an indicator of performance for both inside and outside of the firm, reflects and gives a direction to whether an investor should transact or not given an investment opportunity. Poor stock liquidity performance in developing economies has led to eventual collapse of high profiled companies and as such awakens the need of understanding how the firm should manage working capital components and stock liquidity at the securities market. Whereas some studies have favored the correlation of working capital management, firm size and Stock liquidity at the securities market, other studies have little to do with it or none of such a relationship exist. Stock Liquidity determines whether it could be easy for a firm to raise funds or not, the higher the liquidity of the stock, the higher the chances of external raising of funds considering the firm size and availability of positive information both inside and outside of the firm. This study applied five theories, namely; Agency theory, Trading Cost theory, Resource Based View Theory, Keynesian Liquidity Theory, and lastly asymmetry theory. Hence, the general objective of the study was to establish the effect of working capital management, firm size on stock liquidity of securities at Nairobi Securities Exchange. Specific objectives were; to establish effect of accounts payables conversion period on stock liquidity at Nairobi Securities Exchange, determine effect of accounts receivables conversion period on stock liquidity of securities of firms at Nairobi Securities Exchange, ascertain the effect of cash conversion period on stock liquidity of securities of firms at Nairobi Securities Exchange, to ascertain effect of inventory conversion period on stock liquidity of securities of firms at Nairobi Securities Exchange and lastly to ascertain the effect of firm size on the relationship between working capital management and stock liquidity of securities of firms at Nairobi Securities Exchange. Due to nature of the study, descriptive survey research design was used and more so, ontological research philosophy of positivism was considered. A census of all firms at Nairobi Securities Exchange as at June 2023 constituted the study population. The study employed secondary data extracted from audited financial statements and annual reports of individual companies at Nairobi Securities Exchange for ten-year period covering 2013-2023.Record survey sheet was used when collecting data for both independent and dependent variables. Secondary data collected from Nairobi Securities Exchange was analyzed by using both descriptive and inferential statistics. E-views software was used on analysis of determination of descriptive and inferential statistics. Multivariate regression analysis within panel data framework were used. Results of the analysis indicated that inventory conversion period and firm size had an effect on stock liquidity of securities of firms at Nairobi Securities Exchange, Accounts payables conversion period and firm size had an effect on stock liquidity of securities of firms at Nairobi Securities Exchange, accounts receivables conversion period and firm size had an effect on stock liquidity of securities of firms at Nairobi Securities Exchange, cash conversion period and firm size had an effect on stock liquidity of securities of firms at Nairobi Securities Exchange. Lastly firm size had an effect on the relationship between working capital management practices and stock liquidity of securities of firms at Nairobi Securities Exchange. Study recommendation was that managers should embrace proper techniques of managing components of working capital in firms since a managerial combination of working capital components and Stock Liquidity of securities improves trading transactions of individual companies at the securities exchange market.