Effects of Liquidity on Financial Performance of Non-Financial Institutions’ Listed at Nairobi Securities Exchange, Kenya

International Journal of Research and Innovation in Social Science (IJRISS) | Volume V, Issue X, October 2021 | ISSN 2454–6186

Effects of Liquidity on Financial Performance of Non-Financial Institutions’ Listed at Nairobi Securities Exchange, Kenya

Rebecca Jeruto Keitany¹, Dr. Fredrick Warui^2
1,2Department of Accounting and Finance, School of Business, Kenyatta University, Kenya

Abstract:Merger has been undergoing in organizations in Kenya with the main focus on financial performance improvement. However, most of these organizations have never realized their financial targets. Therefore, this study sought to establish the effects of liquidity on financial performance of non-financial institutions listed at the Nairobi Securities Exchange in Kenya. An exploratory research was used. Three non-financial institutions namely: Car and General (C&G) and Cummins, Unga group Holdings and Kenolkobil were targeted. The study used secondary data collection sheet which involved the documentary reviews of data available in the released financial statements, and annual reports for the last 10 years, that is, 2011 to 2020. Analysis of quantitative data was through the use of descriptive statistics that included mean and standard deviation. In addition, determination of how variables relate to each other was done using inferential statistics specifically using analysis of multiple regression. The study established that liquidity had a significant effect on financial performance as indicated by t-value (t= 2.781, p<0.05). The study concludes that due to insufficient market depth or market interruptions, non-financial institutions were unable to efficiently liquidate or offset a particular position at or near the last traded market price, leading them to participate in bank lending to satisfy their daily transactions. The study recommends that the non-financial institutions listed at NSE should aim at maximizing their overhead expenses that consume much of their cash flow.

Keywords: Liquidity, Merger, Financial Performance

I. INTRODUCTION

Companies are becoming more aggressive in developing strategies to survive and grow in this globalization era. Every organization chooses the best strategy to win the competition and survive in the future (Bansal & Kumara, 2016). Mahmood, Aamir, Hussain and Sohail (2017) observe that with the global financial crises and the rapid advancement in technology has led to the increase on merger which has in turn made the organizations gain a large share of market, become competitive, increase their revenue earning and minimize risk and have a wide range of diversified products. Therefore, it can be argued that organization enters into a merger by gaining access to unique assets that could take long in developing within the organization.

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