FINANCING STRUCTURE ON FINANCIAL PERFORMANCE OF OIL MARKETING COMPANIES IN MOMBASA COUNTY, KENYA
Abstract
The purpose of the study was to investigate the financing structure on financial performance of oil marketing firms in Mombasa County. The study adopted cross-sectional research design. The target population comprised of all small and medium Oil marketing firms operating in Mombasa County which formed the unit of observation. The sample size was 79 arrived at using Slovin’s formula from the target population. The collected data was coded and analyzed using the Statistical Package for Social Sciences (SPSS version 26) tool. From the findings, the study revealed that the internal equity financing has a significant effect on financial performance of Oil marketing firms. Also the study established that the company ploughs back the owner’s earnings to fund the firm. Internal equity financing was preferred by the company so as to maintain optimal liquidity. Also it was preferred by the Oil marketers due to its cost effectiveness as revealed in the study. The need to maintain firm’s control makes it prefer internal equity financing. The study also concludes that the oil marketing firms finance their deficit through debt financing so as to consolidate ownership. This was possible because other sources of financing involvds some sort of ownership dilution. Further, it was concluded that the oil marketing firms opt for debt financing because its tax deductible hence savings in tax and the firms prefer bank overdrafts as debt financing tool and that debt financing is opted by the firms since it improves firm’s credit score. The study recommended that e Oil marketing firms should settle for retained earnings when in need of operations financing. This is because retained earning comes at no cost relative to other financing sources. Also the Oil marketing companies should develop retained earnings management policy to guide on how and when to use retained earnings. In extreme cases, the companies should employ retained earnings to finance expansion investments. In addition, the companies should complement other financing sources with trade credit. Trade credit should not be prioritized as a financing source but rather should be complemented with other financing methods.
Key Words: Internal Equity Financing, Debt Financing, Retained Earnings, Trade Credit Financing
CITATION: Fujoh, G. M., & Wekesa, M. (2023). Financing structure on financial performance of oil marketing companies in Mombasa County, Kenya. The Strategic Journal of Business & Change Management, 10 (2), 529–544.
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DOI: http://dx.doi.org/10.61426/sjbcm.v10i2.2621
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