Effect of Liquidity Management on Financial Performance of Non-financial Firms Listed at the Nairobi Securities Exchange

Abstract

When firms experience difficulties with liquidity management, they may transfer their expenses to creditors this is very risky for firms and could bring about bad credit terms. In the long run greatly affects effectiveness. The importance of liquidity management has been well embraced by institutions. Absence of regulations makes companies to hold liquid assets to a point that they maximize the profitability together with financial performance. The goal of the study was to see how liquidity management affected the performance of NSE-listed non-financial companies. The study's population included all 42 NSE-listed non-financial companies. Liquidity management, defined by the current ratio was used as a predictor variable in this study. Control variables were financial leverage, defined as the total debt to total assets ratio in a particular year, total assets natural log measuring company size, and management efficiency measured by the ratio of total revenue to total assets per year. Return on assets served as the response variable for financial performance. Secondary data was collected on a yearly basis for five years (January 2016 to December 2020). The research variables were analyzed using a descriptive design. Descriptive, correlation and regression analysis was conducted. The conclusions yielded a 0.292 R-square value, indicating that variations in the chosen independent variables account for 29.2 percent of changes in financial performance amongst non-financial firms, whereas other factors accounting for 70.8% of variance in financial performance amongst NSE listed non-financial firms. Independent variables had a good relationship with company performance (R=0.541) in this study. The F statistic was significant at 5% with p<0.05, according to the ANOVA results. This demonstrated that the overall model was effective in establishing the variables' relationships. Liquidity management had a positive as well as statistically significant impact on the performance of the NSE listed non-financial companies. Financial leverage had a negative as well as statistically significant impact on financial performance. In this research, the size of the firm had no statistical significance. This suggestion is that NSE-listed non-financial companies should focus on achieving the best degree of liquidity positions and financial leverage, as the two factors has a substantial effect on their financial performance.