Effect of Technology Investment on the Financial Performance of Healthcare Firms in Nairobi

Abstract

Healthcare access is among the main agenda of the country’s economic development. A health workforce leads to a gradual growth in the country’s GDP. Healthcare technology investment entails the use of modern technology equipment to carry out diagnosis or in treatment of the particular ailment. However there has been a debate on whether investing in the new technology equipment improves the health of the people in the society. Use of invested technology requires complementary skills that come in hand with training on the use of the equipment. Also adopting to the technologies as they come is a risky process that in return brings potential benefits. The aim of this study was to ascertain the effect of technology investment on financial performance of healthcare firms in Nairobi. The population for the study was 9 healthcare firms in Nairobi. The independent variables for the study were technology investment as measured by natural logarithm of annual investment in technology equipment, IT cost as measured by the ratio of IT cost to total administrative cost, firm size as measured by natural logarithm of total assets and inventory turnover as measured by the ratio of cost of goods sold to average inventory. Financial performance was the dependent variable and was measured by return on assets. Secondary data was collected over a five 5-year time frame (January 2013 to December 2017) annually. Descriptive cross-sectional research design was employed for the study and the relationship between variables established using multiple linear regression analysis. Data analysis was undertaken using the SPSS software. The results of the study produced R-square value of 0.476 which means that about 47.6 percent of the variation in financial performance of healthcare firms in Nairobi can be explained by the four selected independent variables while 52.4 percent in the variation of financial performance of healthcare firms was associated with other factors not covered in this research. The study also found that the independent variables had a strong correlation with financial performance of healthcare firms (R=0.690). ANOVA results show that the F statistic was significant at 5% level with a p=0.000. Therefore, the model was fit to explain the association between the selected variables. The findings also showed that firm size produced positive and statistically significant values for this study while technology investment, IT cost and inventory turnover produced statistically insignificant values for this study. This study recommends that healthcare firms should invest more on assets as firms with higher assets were found to perform significantly better compared to firms with less assets