| dc.description.abstract | In any firm or an organization the issue of risk is of a great importance to anyone interested in
finance either as an investor or a finance manager. This is so because while the main objective of
any investment is for its return, partly depends on the risk level associated with that investment.
That is, the higher the risk the higher is the expected returns and vice versa. This being the case
however, it has been established further that investors can diversify away part of this risk. The
part of risk which cannot be diversified away is systematic risk and this is what concerns the
manager most.
A well designed and implemented working capital management is expected to contribute
positively to the creation of shareholders’ wealth. The purpose of this study was to determine the
empirical relationship between working capital management and firm’s systematic risk. The
study used secondary data obtained from annual reports and financial statement of companies
listed at the Nairobi Securities Exchange.
A sample of 20 companies listed at the Nairobi Securities Exchange for a period of seven years
from 2008 to 2014 was studied to determine the effect of different variables of working capital
management including average payment period, inventory turnover in days, average collection
period and cash conversion cycle on the beta. Current ratio, size of the firm (measured in terms
of natural logarithm of sales), fixed financial assets to total assets ratio and debt ratio were used
as control variables.
Pearson’s correlation and regression analysis (pooled least square) were used for analysis. The
results show that there is no statistical significant relationship between variables of working
capital management and the beta of a firm. This means that the manager may not mitigate
systematic risk of a firm by handling correctly the cash conversion cycle and keeping each different component of working capital management at an optimal level. | en_US |
