The Effect of the of Working Capital Management on the Shareholder's Value
Abstract
The purpose of this study was to establish effect of the of working capital management on the
shareholder's value, case study being the Nairobi Stock Exchange. In particular, specific
objectives were to evaluate the current assets and current liabilities (working capital) in each
industry, and establish the effect of working capital on dividends and market share prices. This
study addresses the research gap by previous studies that focused on how dividends affect the
value of the firms, factors that affect dividends and market price per share other that levels of
working capital, and effect of working capital on firms' profitability and liquidity but not on how
it affects dividends and market share price. To address this gap, the study evaluates the extent to
which current assets and current liabilities affect firms' dividends and market share price of their
common stock.
The target population was firm listed in the Nairobi Stock Exchange, apart from all firms in the
Finance and Investment industry. This is because financial statement for firms (mainly banks) in
this industry does not distinguish between current assets and current liabilities from non-current
ones. 32 firms were randomly sampled, this being 80% of the population.
The findings of this study show that the level of current assets and current liabilities vary
between industries. Further, with 95% confidence, the findings support the alternative hypothesis
that the level of Current assets and liabilities as well as MPS and Dividepd Payout Ratios differs
significantly between industries. This is because the Z values are not within the range of positive
and negative 1.96.
The study has revealed that the effect of levels of current assets and current liabilities vary
between industries. In agricultural sector, increase in levels of current assets would have a
negative effect on both the MPS but zero effect on Dividend Payout ratios. In commercial
industry, increase in levels of current assets would have a positive effect on both the MPS but
zero effect on Dividend Payout ratios. In the Industrial and Allied, the effect of levels of current
assets on MPS is negligible, while that of current liabilities is negative. For the Alternative
Investment Market, the effect of increase in levels of current assets is positive on MPS but
negative on Dividend payout ratios, while dividend payout ratios are negatively affected by the
increase in levels of current assets and current liabilities.
It has been recommended that Finance Managers should focus of factors that affect shareholders'
value other than just the levels of current assets and currents liabilities. This is because only very
smallproportion of the changes in MPS and Dividend Payout ratios is affected by levels of
current assets and current liabilities.
Citation
Nyoro,Jessee M.,November,2013.The Effect Of The Of Working Capital Management On The Shareholder's Value.Publisher
University of Nairobi