EFFECT OF LIQUIDITY ON GROWTH OF MANUFACTURING FIRMS IN KENYA
Abstract
This study investigated the effect of liquidity on growth of manufacturing firms in Kenya. The study sampled 102 firms from a target population of 708 firms registered in Kenya Association of Manufactures 2017 directory. This study majored on the trade-off theory of capital structure. To systematically solve the research hypothesis, the study’s research methodology adopted both descriptive and quantitative research design approach. The target population consisted of manufacturing firms who were registered members of KAM and were part of the 708 members with at least five years in existence (i.e., are in existence from 2011 to 2016). The study used stratified random sampling due to varied features of the firms’ population. The primary data in the study was used to produce the descriptive statistics that was used for trend analysis while the secondary data was used for inferential analysis (correlation and regression) to conducted diagnostic tests of the study hypotheses. The study administered a total of 102 questionnaires out of which 80 questionnaires were dully filled and returned. The null hypothesis on firm’s liquidity having no significant effect on firm’s growth was rejected. The results of the study revealed that there was a statistically significant and positive influence by firm’s liquidity on the firm’s growth of manufacturing firms in Kenya. The trade-off theory predicts a positive linkage between liquidity and leverage while the pecking order theory predicts a negative relationship between liquidity and leverage (Sheikh & Wang, 2011). The results revealed that liquidity as a current ratio, is positively significantly associated with firm growth. The areas identified for further research include considering other capital structure determinants effect on growth besides liquidity, that this study considered. Contract manufacturing and the impact of leasing of fixed assets on Kenya Manufacturing Industry were also other areas identified for future research.
Key Words: Liquidity, Manufacturing Industry
CITATION: Adede, A. A., Namusonge, G., & Sakwa, M. (2022). Effect of liquidity on growth of manufacturing firms in Kenya. The Strategic Journal of Business & Change Management, 9 (4), 494 - 509.
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DOI: http://dx.doi.org/10.61426/sjbcm.v9i4.2426
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