INVESTMENT DECISIONS AND FINANCIAL PERFORMANCE OF MILLING COMPANIES IN MOMBASA COUNTY, KENYA

Abstract

The purpose of the study was to investigate investment decisions and financial performance in the context of grain milling firms in Mombasa, Kenya. This study was grounded on Signaling theory, Tobin’s Q theory of investment and the accelerator theory of investment. The study utilized cross-sectional research design. The current study targeted all 8 grain millers operating in Mombasa County. The unit of observation was the management staff drawn from finance, operations, accounting and engineering departments. The simple random sampling technique was used to choose the management staff of the target grain milling firms. A sample size of 107 participants was obtained by use of Slovin’s formula. Primary data was collected using questionnaire. The study employed a structured questionnaire to collect data from the participants. Quantitative data was analyzed through statistical procedures. Multiple regression analysis was used because it provides estimates of net effects and explanatory power. On regression results, it was revealed that asset structure decisions, expansion decisions, replacement decisions and Research & Development decisions have a positive and significant effect on financial performance. The study established that the milling firms apply rationality while choosing the type of assets to invest on. The results showed that the assets of the firm were managed effectively to improve returns. It was concluded that the asset mix decisions are made by the management and that the company has asset structure combination policy. The study concluded that the milling firms reported increase in new products and line of operation and through expansion, these firms have increased the number of distribution points translating to new markets. The study concludes that the firms use the respective economic service lives of the defender and the challenger when conducting a replacement analysis and that the statistical computations are employed in making decision on which assets to replace. The study recommended that the management of milling firms should select assets structure to adopt using rational methods. This would make it possible to only select assets those which would add value to the firms. The assets of the firm should be managed prudently to improve returns. The expansion decisions of these firms should be geared towards increasing customers. Also when making replacement decisions, the management should favor statistical methods over naïve methods so as to make rational replacement decisions. To achieve feat in innovation, the firms should have autonomous Research & Development function with enough resources and support.

Key Words: Asset Structure, Replacement Decisions, Expansion Decisions, Research & Development

 CITATION: Mohamed, H. A., & Wanjala, M. W. (2024). Investment decisions and financial performance of milling companies in Mombasa County, Kenya. The Strategic Journal of Business & Change Management, 11 (2), 867 – 880. http://dx.doi.org/10.61426/sjbcm.v11i2.2955