Working Capital Management Approaches and Market Value of Construction and Allied Firms Listed at Nairobi Securities Exchange, Kenya

Abstract

Working Capital remains a must have for every firm. Working Capital Management revolves around checking the balance between investment on Current Assets and financing through Current Liabilities. The study objective was first to establish Working Capital Management Approaches adopted by Construction and Allied sector firms listed at NSE, Kenya then to ascertain the influence of Working Capital Management Approaches on Market Value (Tobin`s Q). This was a Correlation study Design using Secondary Quantitative Panel data set from 5 Construction and Allied sector firms listed at NSE ranging from 2010 to 2016. The study Variables (Independent, Control and Dependent) data were analyzed by Descriptive Statistics, Pearson Correlation and Regression of the analytical Models via Statistical Packages for Social Science (SPSS). Data were presented using tables and graph. The outcome of the study showcased indeed that Construction and Allied sector firms listed at NSE adopted varied degree of Working Capital Investment and Financing Approaches that had significant influence on their Market Value proxied by Tobin`s Q.Model 1:Revealed Significant negative link between Tobin`s Q and degree of Aggressive Working Capital Investment Approach (AWCIA). Model 2: Revealed positive link between Tobin`s Q and degree of Aggressive Working Capital Financing Approach (AWCFA). Model 3: Revealed that when WCIA and WCFA alongside Firm Size and Leverage are regressed concurrently, significant negative relationship between Tobin`s Q and both Aggressive Working Capital Investment (AWCIA) and Aggressive Working Capital Financing Approach (AWCFA) arise. Conclusions and recommendations highlighted in this study are valuable to financial managers, investors and other financial policy makers for prudent decisions on Working Capital Management.