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

Abstract

Investors consider Liquidity of assets as an avenue of finances to the organizations. Illiquidity has led most of the listed companies to run insolvent in that considerable managerial obligations in firms fail to be honoured. Liquidity is considered as the capability with which a security could either be sold or bought at securities exchange. Inventory Conversion period, arises from Working Capital elements which is preferred as relevant on determining the level of cash cycle conversion period which is vital for the organization’s contractual functions both internally and externally. Inventory Conversion Period is an internal function of the organization that provides in-house financial information that assist investors to make decisions over the existence of a firm and how such a firm can be recognized by external investors who would like to associate themselves with the firm. The objective of the study was to examine the effect of Inventory Conversion Period on Liquidity of Equity Securities of Firms listed at Nairobi Securities Exchange. This study considered target population of the entire listed sixty one 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 companies since it was comparatively moderate and manageable. This study used 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 on panel data for regression analysis. Findings on Inventory Conversion Period indicated a positive and significant effect on Liquidity of Equity Securities at Nairobi Securities Exchange. This study embraced for proper management of inventory conversion period since improves on Liquidity of Equity Securities of companies listed at Nairobi Securities Exchange. The study recommended for further research on the Inventory Conversion Period and Liquidity of Equity Securities since it 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, Inventory Conversion Period, Firm Size, Liquidity

DOI: 10.7176/RJFA/11-22-09

Publication date: November 30th 2020