Effect Of Short-term Financing Decisions On Firm Value Of Non-financial Firms Listed On The Nairobi Securities Exchange, Kenya

Abstract

Firm value and its creation are some of the main goals of corporate entities. Firm value, unlike profitability firm value is more holistic and views at sustainable institutions. A host of non-non-financial listed firms have in the recent times faced financial turbulence and this has impacted on their value. The firms include Mumias Sugar, ARM Mining, Nairobi Business Ventures, among others. Resulting to decline in performance of this firms is drop in their share prices and this have affected their value. In this in mind, this study sought to determine the effect of short-term financing decisions on firm value of non-financial firms listed on the Nairobi Securities Exchange, Kenya. Specifically, the study sought to: examine the effects of cash management on firm value of non-financial firms listed on the Nairobi Securities Exchange, Kenya; determine the effects of receivables management on firm value of non financial firms listed on the Nairobi Securities Exchange, Kenya; examine the effects of payables management on firm value of non-financial firms listed on the Nairobi Securities Exchange, Kenya and establish the effects of inventory management on firm value of non financial firms listed on the Nairobi Securities Exchange, Kenya. Based on the specific objectives, four corresponding hypotheses were formulated and tested. Four theories, the pecking order theory, the trade-off theory, the financing theory and liquidity theory anchored the study. The study adopted quantitative research design and employed panel data regression methodology. The study targeted all the non-financial firms listed and trading at the Nairobi securities exchange over for the period 2010 to 2019. The study adopted census and targeted all 44 non-financial firms that were listed as of December 2020. However, due to data concerns, only 28 firms were studied. The study used secondary panel data obtained from published financial statements of each firm. Hausman specification tests determined that Random effects generalized least square method was appropriate. Prior to data analysis, diagnostic tests were carried out to ensure non violation of the classical linear assumptions. Amongst the diagnostic tests undertaken were the multi collinearity tests; normality tests; homoscedasticity test and auto correlation tests. Descriptive statics inform of mean, standard deviation, minimum and maximum values was presented. Results of the study indicated that inventory management had a positive and statistically significant association with firm value both individually and jointly with other variables. Payable management, independently and also with other variables was also found to have a positive and statistically significant effect on firm value. On its own, receivables management was found to have a positive and statistically significant association with firm value. Jointly with other variables, receivables management was found to have an insignificant effect on firm value. Cash management, according to the findings of the study, had a positive but statistically not significant effect on firm value both individually and jointly with other variables. The study makes recommendations to policy makers to legislate on firm value reporting. Further, it recommends to management of the listed firms to ensure a clear understanding on how different short term financing decisions impacts on firm value.