Effect of Inventory Management on Financial Performance of Firms Funded by Government Venture Capital in Kenya

Abstract

The purpose of this study was to investigate the effect of inventory management on the financial performance as well as to explore the moderating effect of political environment on the financial performance of firms funded by Government Venture capital in Kenya.  The target population comprised all firms funded by government venture capital in Kenya. Twenty four firms had been funded by government venture capital through ICDC as at 31^stDecember, 2013. The study adopted a census approach because of the small number of firms. The study reviewed both theoretical and empirical literature on inventory management.  From the review of related literature, a comprehensive conceptual framework of argument of the relationship between inventory management and firm financial performance was formulated.    Based on the conceptual framework, a questionnaire was formulated and with the use of Cronbach’s Co-efficient Alpha the instrument’s validity and reliability was tested through a pilot study.  The pretested questionnaire was used to collect primary data for the independent variables while a record survey sheet was used to collect secondary data for the dependent variable.  Out of 72 respondents, 51 responded, being 71%. Statistical package for social sciences (SPSS) version 20.0 was used as the statistical tool for analysis of the data. Normality tests were carried on the dependent variable.  Multi collinearity and homoscedasticity tests were carried out on the independent and dependent variables respectively.  Quantitative data was analyzed and described using descriptive and inferential statistics.  Scatter plots were used to test if linear relationships existed after which inferential statistics analysis for every variable was made.  There are few studies in Kenya on Cash flow management and financial performance and therefore this study was an attempt to fill this gap and provide empirical evidence on the effect of cash flow management on the financial performance of firms funded by government venture capital in Kenya.

Keywords: Working capital management, financial performance, inventory management, EOQ.