Influence of Return on Investment of Debt Financing on Financial Portfolio Diversification among Commercial Sugarcane Farmers in Kenya

Abstract

The study’s specific objective was to evaluate the relationship between financial returns of debt financing and financial portfolio diversification among commercial sugarcane farmers in Kenya. Descriptive correlation was then used to describe and establish the relationships among the study variables. The target population for this study comprised of all sugarcane farmers in Kakamega and Bungoma Counties. The study variables were measured using both the ordinal scale and summated scale (likert-type scale).The questionnaire was pre-tested on pilot respondents who were not be part of the study respondents but knowledgeable in the study aspects in order to ensure their validity and relevance. Cronbach’s alpha coefficient was used to measure the reliability of the scale. The study focused on farmers of two counties: Bungoma and Kakamega. The regression results reveal statistically significant positive linear relationship between return on investment of debt financing and financial portfolio diversification (β = 0.789, p-value = 0.002). At the individual level, all the indicators of return on investment of debt financing had positive and significant effect on financial portfolio diversification as follows: Profits from Debt financing had positively influenced on financial portfolio diversification (β = 0.789 and p-value = 0.002) while Security flexibility of debt financing also positively affected financial portfolio diversification (β = 0.117, p-value = 0.003). The results also showed that financial return on investment of debt financing had moderately high explanatory power on financial portfolio diversification among commercial sugarcane farmers in Kenya in that it accounted for 62.3 percent of its variability therefore commercial sugarcane farmers in Kenya need to take into account financial return on investment of debt financing measures such as profits from farm outputs are sufficient enough to support my individual needs even as they diversify their portfolios.