Effects of Short-term Financing on Corporate Performance of Firms Listed at Nairobi Securities Exchange

Abstract

Business uncertain environments and competitions push firms to renovate their operations by reviewing the existing financial policies and to adopt the ones that would favorably lead to business survival. This gives them an edge over the others that use a reactive approach in regards to their business operations. In order to finance any business operations, resources are required and these resources can either be acquired in form of debt or equity. To apply debt as a source of finance the borrower has to take into consideration its maturity such as short-term or long-term debt. In Kenya, NSE listed firms are using short-term financing to raise most of their fund to improve undeveloped capital market. Deliberates influence of short-term financing on firm’s economic performance lead to determined outcomes and concerns whenever a firm is investing in current assets. The objective of the current study was to investigate the whether short-term financing influence corporate performance of NSE registered companies. The study used explanatory non–experimental research design. The target populations of this study were all NSE listed firms between the years 2015-2019. The study adopted census where all firms listed at NSE from 2015-2019 were involved in the study. Secondary data was used in this study and sourced from the NSE data. Data was coded in the SPSS (V.20). Descriptive statistics and frequency distribution tables was used to analyze quantitative data. Pearson Correlation and ANOVA test to be carried out to find out if there exist any relationship between short-term financing and corporate performance. Normality test indicated that the data was normally distributed. The study found that Multicollinearity was not present as all VIF values were below 5. From the findings, it’s clear that p-values for the Chi-square statistic is less 0.05 and hence the residuals of the empirical model are not auto correlated. The study found that all the variables used in this study had a positive insignificant relationship with ROA. The study also found that a unit increase of the variables used in this study results to an increase on corporate governance. The study concluded that Cash & cash equivalents, Growth, size showed a strong and significant relationship with ROA. Short-term financing and liquidity showed a positive relationship with ROA, although the relationship was insignificant. The study recommends that corporate managers should pay more attention to cash management on the basis of these findings, because proper cash management improves corporate performance. The study also recommends that policy makers of NSE-listed companies should consider firm features when formulating short-term financing policies in order to boost corporate performance.