Effect of Working Capital Management Practices on Financial Performance of Listed Agricultural Firms in Nairobi Securities Exchange. A Moderating Role of Government Policy

Abstract

Contemporary business firms on the Nairobi Securities Exchange have incorporated working capital management practices, with government rules playing a moderating role. We guided this investigation with the following specific goals: The primary objective of this investigation was to examine the impact of account receivable management on the financial performance of a publicly traded agricultural company on the Nairobi stock exchange. A company's day-to-day operations rely heavily on working capital, which strongly influences its performance. In 2018, the financial performance of the agriculture industry was 6.1%, while in 2019, it dropped to 3.6%. Inefficient working capital management practices are the cause of this 2.5% decline in financial performance. The main objective was to examine the influence of working capital management practices on the financial performance of a listed agricultural exchange. Furthermore, the goal was to assess the impact of account payable management on the financial performance of a listed agricultural firm on the Nairobi Securities Exchange, as well as the effect of cash management on the same exchange. The theories of operating cycle, transaction costs, agency, and transaction cost economics all supported it. The study employed a descriptive research design. The study focused on a specific group of 505 individuals, comprising senior management, accounting and finance departments, and procurement departments of agricultural firms listed on the NSE as of December 31, 2020. We conducted the investigation using a sample size of 319 individuals, selected through stratified random sampling. We collected primary data using closed questionnaires and secondary data using a data collection sheet. Pilot testing necessitates a sample size ranging from 10% to 20% (Baker, 2004). The study assessed the dependability of a subset, comprising 10% of the questionnaires. We distributed a total of 22 questionnaires to respondents from unlisted farm operations, leading to this outcome. Based on the findings, all variables have Cronbach's alpha values over 0.70, signifying their reliability. We analyzed the data using descriptive statistics, which included measures like mean, minimum, maximum, and standard deviation. We also employed inferential statistics like correlation and regression analysis. The study discovered a strong and positive correlation between accounts receivable and the financial success of agricultural companies listed in Kenya. Similarly, the study found that accounts payables had a modest, adverse, yet statistically significant correlation with the financial performance of publicly traded agricultural companies. The study demonstrated that currency conversion cycles have an impact on companies' ability to exceed their budgetary limits. The study also found that cash management had a robust, immediate, and significant correlation with the financial success of agricultural companies listed in Kenya. The proposal suggested that listed agricultural firms maintain a rapid turnover time for their inventory. Moreover, the research recommended that publicly traded agriculture companies employ modern and advanced inventory management systems. This technique would improve financial performance by enhancing efficiency and effectiveness.