Determinants of Financial Distress of Non-financial Firms Listed at the Nairobi Securities Exchange

Abstract

The subject of financial distress on companies has become more important to stake-holders of businesses as management of this situation can lead to either turn-around or total collapse of the business. The purpose of this study was to establish the determinants of financial distress on non-financial firms listed at the Nairobi Securities Exchange. This will specifically study seek to: establish the effect of profitability (ROA), liquidity, leverage, asset-turn over and total assets on Altman Z score (dependent variable). A sample of 10 non-financial under the following segments in the NSE sector categorization; Automobile, Commercial and Services, Energy and Petroleum and Manufacturing and Allied, Construction and Allied, Agricultural sector and Telecommunication. These segments were selected because they possessed the required information and Altman’s Z-score, a proxy for financial distress was applied for this companies. The research relied on secondary data. Secondary data was gathered from financial statements, NSE Investor Handbook, as well as websites of firms studied. Financial information of a five-year period between 2013 and 2017.The study used statistical packages for social sciences (SPSS) to generate the result findings. The correlation and regression result revealed that profitability (ROA) and total assets were significant. The study concluded that return on asset and profitability ratios were significant variables that measure a distress in non-financial firms. The results emphasize the need of non -financial firms to focus on their asset investment and efficiency so as not to have financial distress in their operations.