| dc.description.abstract | The overall objective of this study was to establish the effects of credit risk on the
financial performance of sugar firms in Kenya. This was achieved by looking at the effect
of credit risk exposure rate, default rate, and recovery rate on the return on equity of
sugar firms in Kenya. This is led by the fact that sugar industry in Kenya is faced with
financial challenges and many sugar firms are struggling with operational cost to make
profit. The study covered all the eight registered sugar firms in Kenya by the Kenya
Sugar Board as at December 2013. Cross-sectional survey design was used to collect the
data from the field. The researcher carried out a census survey where all the registered
sugar firms by the Kenya sugar board as at the time of the study were studied.
Descriptive statistics and inferential analysis of the data were done using measures of
central tendency and Pearson correlation analysis. This study induced and actualized
better understanding of credit risk effect on sugar firms’ performance. Secondary data
collected from the sugar firms annual reports for the period 2009 to 2013 was used in this
study. The data collected from the annual report was analyzed using the multiple
regression analysis. The regression out put was obtained using statistical package for
social sciences. In the model, the dependent variable return on equity was used as an
indicator of financial performance while the independent variables credit risk exposure
rate, default rate, and recovery rate were used as credit risk indicators. The findings of the
study showed that there is a significant relationship between financial performance and
credit risk. The dependent and the independent variables in the study indicated a
relationship with credit risk exposure rate and default rate showing a negative
relationship with the return on equity while recovery rate showing a positive relationship
with return on equity. The regression results shows that exposure rate have a higher
significant effect on return on equity than the default rate. The regression results is
significant since both the independent variables (ER, DR, and RR) can reliably predict
the independent variable return on equity. The study concludes that credit risk exposure
rate, default rate and recovery rate have a significant relationship with the return on
equity of sugar firms in Kenya. The recommendation from the findings of the study
suggests that all sugar firms in Kenya should implement credit risk measurement system
such as credit ranking and credit scoring to customers to avoid incurring more cost on
customers who have proved to be not credit worthy. All sugar firms should define the
credit risk profile of their clients to ensure that necessary measures are taken before credit
facilities are granted. The study suggests that more independent variables to be added in
the regression model to help improve the results of the study. | en_US |
