Cash Management on Financial Performance of Non-Financial Firms Listed at Nairobi Securities Exchange

Abstract

Cash is frequently referred to as the most valuable asset for corporate operations, yet it has also been proven to be a non-returning asset. Financial managers attempt to achieve a balance between the amount of cash available to support business operations and avoiding excessive cash holdings due to the opportunity cost of lost profits. Non-financial entities that are listed on the Nairobi Securities Exchange are known as public non-financial firms. These companies, like all other businesses, are worried about their financial performance since it has a significant impact on their value addition to the economy in general and shareholder wealth maximization in particular. These companies' financial performance, on the other hand, has been volatile over the time period examined in this analysis, which runs from 2004 to 2018. It's unclear whether cash management has had any impact on this performance. On the study variables, this study null hypothesized that cash management has no significant effect on financial performance of non-financial firms listed on the NSE, based on the Keynesian Liquidity Preference Theory and Miller-Orr stochastic cash management theory, as well as the deterministic cash conversion model. The cash flow data and corporate profits needed to calculate return on assets were obtained from these companies' published financial statements. The p-value and the t-statistic were utilized to create the panel data set that was employed in this investigation via regression analysis at a 95 percent confidence interval. The data show that cash management has a favorable impact on a company's financial performance. The findings are consistent with the Keynesian liquidity preference theory, which assumes that businesses keep cash on hand not only for transactions but also for risk management and investment. It appears that the opportunity costs of cash retained for transactions are more than compensated by the opportunity benefits of cash for security and arbitrage profits. Because of the stringent laws that govern banks and other financial institutions, this study was limited to non-financial businesses. As a result, it is suggested that a comparable modified study, with regulatory environment restrictions, be conducted to determine the impact of cash management among financial institutions..

Keywords: Cash management, financial performance, firm size, Non-financial firms listed in NSE

DOI: 10.7176/RJFA/12-23-01

Publication date: December 31^st 2021