The relationship between capital budgeting techniques and financial performance of non-financial firms listed at Nairobi securities exchange
Abstract
The main objective of this study was to investigate
the relationship between capital budgeting
techniques and financial performance of non-financi
al firms listed at Nairobi Securities
Exchange. The study employed a descriptive design t
o determine the relationship between
capital budgeting techniques and financial performa
nce of non-financial firms listed at
Nairobi Securities Exchange. The target population
consisted of all the 50 non-financial
companies listed at The Nairobi Securities Exchange
as at 30
th
December 2013 (see appendix
II). The study employed a census survey, because NS
E had only 50 non-financial firms that
were listed, therefore the whole population of the
companies was included in this study.
Thus, no sampling procedure was conducted. The stud
y employed both primary and
secondary data. The data was collected through ques
tionnaires which were administered by
the researcher using drop and pick later method. Th
e secondary data was collected from the
published accounts of the companies. The published
accounts were obtained from Capital
Markets Authority (CMA) and NSE library. Regression
analysis was used to test the
relationship between capital budgeting techniques a
nd financial performance. The study
established that holding all factors (Capital budge
ting techniques, size of the firm and age of
the company, factors affecting return on investment
. The findings presented also shows that
taking all other independent variables at zero, a u
nit increase in capital budgeting techniques
will lead to an increase in the scores of return on
investment. A unit increase in size of the
firm will lead to an increase in return on investme
nt. On the other hand, a unit increase in age
of the company will lead to an increase in the scor
es of return on investment. This infers that
age of the company influences return on investment
most followed by capital budgeting
techniques and size of the firm. The study also est
ablished a significant relationship between
return on investment and the independent variables;
capital budgeting techniques and age of
the company. The results of the regression analysis
show that the capital budgeting
techniques significantly affect firm performance, m
easured by return on investments.
Ranking of the individual independent variables, it
shows that, age of the company is highly
related with return on investments, followed by cap
ital budgeting techniques, size of the firm
respectively. Theoretically, the use of sophisticat
ed capital budgeting techniques should
increase the effectiveness of the firms’ performanc
e. Thus, the results of this study concurred
with the four theories that underpin the study. Ba
sed on the findings the study recommends
the managers feel that capital budgeting is at time
s implemented without adequate education
to implementers and ill fitting financial and opera
ting structures.