Effects Of Working Capital Management On The Growth Of Manufacturing Companies Listed At The Nairobi Securities Exchange

Abstract

Manufacturing industry is one of the key pillars of economic development in Kenya. The purpose of the study is to find the effects of working capital management on the growth of manufacturing companies listed at the Nairobi Securities Exchange. Specifically, the study sought to establish the effects of inventory conversion cycle, payable conversion cycle, receivable conversion cycle and cash conversion cycle on the growth of manufacturing companies listed at the NSE. The study applied a historical longitudinal research design. This research targeted manufacturing companies listed at the NSE and collected data for 10 years from 2011 to 2020. The data was sourced from NSE website, and audited financial statements of the manufacturing companies under study. The data collected was analyzed through a panel data regression model (fixed effects) after conducting diagnostic tests that included Hausman specification test, test of multicollinearity, test of serial correlation, heteroscedasticity tests and test of normality of errors. The findings determined that inventory conversion cycle had a statistically significant and negative influence on the growth of manufacturing companies listed at the NSE (β= -0.0446, p = 0.003). Moreover, the study findings determined that payable conversion cycle had a statistically significant and negative influence on the growth of manufacturing companies listed on the NSE (β= -0.0503, p = 0.001). The receivables conversion cycle had no statistically significant influence on the growth of manufacturing companies listed on the NSE. Study findings further determined that cash conversion cycle had a negative and statistically significant influence on the growth of manufacturing companies listed on the NSE (β= -0.0496, p = 0.005). The study makes the following recommendations based on the study's findings. First, modern and automated inventory management practices, such as ABC analysis and just-in-time, should also be implemented by management. Secondly, management should consider taking early payment incentives and simplifying the payables management function to improve payables conversion cycle. Finally, the study recommends to management to adopt and implement effective internal controls that address specific aspects of cash collection cycle such as average length of account receivables, write-offs for uncollected receivables, and credit line management.