Effect of Cash Conversion Period on Liquidity of Equity Securities of Companies at Nairobi Securities Exchange

Abstract

Liquidity has a considerable influence on performance of equity securities of firms listed at the securities market. Liquidity is considered as the readiness, capability with which a security could either be sold or bought at securities exchange. Cash conversion period emanating from Working Capital elements is preferred as essential on determining the efficiency of transaction functions within the organization. Apart from internal managerial effects of individual firms on Cash Conversion Cycle that streamlines performance, liquidity as a measure of how the equity securities perform on the securities exchange market is relevant to investors since firms do fail because of illiquidity of assets. An organization’s success, rally on the investors’ matching of the internal and external managerial effects of the organization. Cash Conversion Period reflects internal effects and liquidity at the securities exchange provides external effects of the organization while trading at the securities market. This study was to determine the effect of Cash Conversion Period on Liquidity of Equity Securities of firms listed at Nairobi Securities Exchange. This study considered target population of the entire listed firms during the closing of the financial year 2016 and embraced a study period of ten years. The study applied panel data that consisted of secondary information for all companies found from publicized audited financial reports. Census technique was used on entire population of 61 companies since it was comparatively moderate and manageable. This study applied Descriptive research design anchored on pragmatism philosophy since the design could depict and describe the situation of the population the way it really was. E-views software was applied for descriptive and inferential statistical analysis and more so on fixed and random effects on panel data for regression analysis. Findings on Cash Conversion Period indicated a positive coefficient and significant probability value which meant a decrease or increase in Cash Conversion Period had a significant effect on Liquidity of Equity Securities at Nairobi Securities Exchange. This study recommended for further research on the independent variable since Cash Conversion Period was just but one of components of working capital components, hence results could be different when combined with other independent variables and the regressed on Liquidity of equity securities at the securities exchange market.

Keywords: Liquidity, Cash Conversion Period, Firm Size, Liquidity 

DOI: 10.7176/RJFA/11-22-03

Publication date: November 30^th 2020