Firm Characteristics And Operational Efficiency Of Agricultural Firms Listed At Nairobi Securities Exchange In Kenya

Abstract

Operational efficiency is the ratio of average outputs to average inputs and firms streamline their core processes in order to reduce waste and improve the capacity of its resource base in order to produce goods of superior quality and offer better services. Firm characteristics such as capital structure, firm size, firm age, number of employees, liquidity, turnover, growth in sales and assets produce positive effects on operational efficiency. Nairobi securities exchange promotes economic development by mobilising savings and reallocating resources, facilitating long term investments, enhancing foreign direct investments and enabling firms to raise new capital. The agricultural sector is significant in the Kenyan economy because it is the main source of food and is among the leading foreign exchange earners. The study was descriptive and examined the relationship between firm characteristics and operational efficiency of agricultural companies listed at Nairobi securities exchange. Specific objectives were to; ascertain the relationship between firm size and operational efficiency of agricultural companies listed at the Nairobi securities exchange, to evaluate the association amongst liquidity and operational efficiency of agricultural companies listed at Nairobi securities exchange, to evaluate the relationship between cash reserves and operational efficiency of agricultural companies listed at Nairobi securities exchange and to examine the association between asset tangibility and the operational efficiency of firms listed in the agricultural sector of the Nairobi securities exchange. The theories anchoring this study were trade off theory, liquidity preference theory, agency theory, the Baumol inventory model together with Miller& Orr‘s cash management model. The target population was 7 agricultural companies listed at Nairobi securities exchange from 2011 to 2020. The study used quantitative secondary data collected from audited financial statements. Quantitative data was analysed using the random effects model and correlation analysis, using STATA version 13. Analyzed data was presented using tables and pie charts. Test of hypothesis was done at 95% confidence interval. The study found that there was a negative significant relationship between asset tangibility, firm size and operational efficiency of agricultural companies listed at Nairobi securities exchange. There was a positive significant relationship between cash reserves and operational efficiency of agricultural companies listed at Nairobi securities exchange. Based on the findings the study concluded that asset tangibility and firm size have a negative significant relationship with operational efficiency while cash reserves has a positive significant relationship with operational efficiency as measured using total asset turnover ratio and equity turnover ratio. The study recommended that policy makers of the listed agricultural companies at the Nairobi securities exchange should incorporate asset tangibility, firm size and cash reserves in their strategic decision-making processes. Since the study focused on listed agricultural companies, further studies can explore listed none agricultural companies and incorporate other firm characteristics such as firm age, profitability, growth and number of employees.