INFLUENCE OF FINANCIAL LEVERAGE AND LIQUIDITY ON FINANCIAL PERFORMANCE OF MANUFACTURING FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE
Abstract
This study sought to investigate the influence of financial leverage and liquidity on financial performance of manufacturing firms listed at the Nairobi Securities Exchange. To accomplish this objective, the study adopted a descriptive research design and targeted 10 manufacturing firms listed at the Nairobi Securities Exchanges as at 31st December 2016 from where the study used a census method to randomly pick all the 95 respondents to participate in the study. The study used structured questionnaires to collect primary data; content validity was used to check validity while Cronbach alpha was used to check reliability of research instruments. Data analysis was computed by SPSS 24, where descriptive statistics (frequencies, percentages, means, standard deviations) and inferential statistics (correlations, linear and multiple regressions) were generated. A total of 87 out 95 respondents returned completely filled questionnaires representing a response rate of 91.6% which is good for generalizability of study findings to a wider population. The study findings revealed that all predictor variables (financial leverage and liquidity) significantly influenced financial performance of manufacturing firms listed on NSE. The study concluded that one; financial leveraging positively influences financial performance of manufacturing firms, thus, manufacturing firms with effective financial leveraging mechanisms can realize an increase in their profitability and two; liquidity is a significant predictor of financial performance of manufacturing firms, thus, a manufacturing firm with efficient cash flow management can sustain profitability in subsequent years. The study recommended that one; financial managers of manufacturing firms should embrace feasible financial leveraging strategies that can boost firm profitability; and,there should be effective and timely monitoring of manufacturing firm’s liquidity position to avoid insolvency risks. A longitudinal study can be done using time series data of manufacturing firm’s profitability so as to compare results.
Key Words: Financial Leverage, Liquidity, Financial Performance, NSE
CITATION: Shimenga, M. A., & Miroga, J. (2019). Influence of financial leverage and liquidity on financial performance of manufacturing firms listed at the Nairobi Securities Exchange. The Strategic Journal of Business & Change Management, 6 (2), 799 –814.
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DOI: http://dx.doi.org/10.61426/sjbcm.v6i2.1148
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