Working Capital Drivers and Financial Sustainability of Public Universities in Kenya

Abstract

The general objective of this study was to determine the effect of working capital drivers on financial sustainability of public universities in Kenya, which was guided by the following independent variables; effect of account payable on financial sustainability of public universities in Kenya, effect of account receivable on financial sustainability of public universities in Kenya, effect of inventory on financial sustainability of public universities in Kenya and the effect of cash on financial sustainability of public universities in Kenya. The study faced limitations related to access constraints, reliance on secondary data, correlational analysis, and a restricted focus on Kenyan public universities, which limited causal inference and broader generalizability. However, these challenges were mitigated through official approvals, data verification, careful period selection, and methodological rigor, ensuring the credibility and internal validity of the findings. The study was anchored on trade off theory, Liquidity Preference Theory, Operating Cycle Theory, Cash Management Theory and Resource Dependence Theory. The scope of the study was based on public universities in Kenya for period between years 2019 to 2022. This study adopted a descriptive and explanatory research design. The study used panel regression. The auditor general's office provided the secondary data. The research concluded that the financial sustainability of Kenya's public universities is influenced by many working capital metrics, including cash, accounts receivable, inventory drivers, and accounts payable. A correlation between working capital and the financial sustainability of Kenya's public institutions was shown to be moderated by student enrollment. Additionally, it was observed that accounts receivable played a minimal role in determining the financial sustainability of public colleges in Kenya, but cash drivers played a major one. The research found that accounts payable, inventory, cash management and student enrollment had significant effects on financial sustainability, with cash emerging as the strongest predictor, while accounts receivable showed no significant aggregate effect. Overall, the findings led to rejection of all null hypotheses except for accounts receivable, confirming that liquidity-focused working capital practices, conditioned by enrollment levels, are central to sustainability in public universities. To enhance cash flow and minimize expenses, it is recommended that payment procedures should be streamlined, decrease days sales outstanding, and use inventory control systems. The policy suggestions also stress the need of maximizing the turnover of accounts payable, decreasing the number of days sales outstanding, enhancing the turnover of inventories, and keeping sufficient cash reserves. Accomplishing these objectives, bolstering financial sustainability, and upholding the academic purpose of the institutions all hinge on the implementation of simplified processes, effective monitoring mechanisms, and inventory tracking systems.