Influence of Cash Flow Trends on Shareholders’ Returns Among Listed Commercial Banks in Kenya

Abstract

Trends in cash flows have been issues encountered by most firms if not only the listed commercial banks in Kenya, leading companies struggling in clearing short term obligations as well as long term obligations as they fall due. This results into low profits or losses, negative operating cash flows, declining revenues and reduced profit margins. The research project objective was to determine the influence of cash flow trends on shareholders returns among Kenyan banks’, this narrowed down to the following specific objectives: to examine influence that the operating cash flows have on shareholders returns, to ascertain the influence that investing activities cash flows have on shareholder returns and to assess the influence of financing cash flows on the shareholder returns. The study adopted correlation research to find relationship of independent and independent variables. The study population was a total of 42 banks listed in NSE. Census technique was adopted due the fact data from some banks were fully available while other banks did not have published account in some years which led to their exclusion from research. Therefore, the study was based sample size of nine institutions whose secondary data from published accounts were used in the study covering period from 2014 to 2020. On the relationship between cash flows from operating activities, it was concluded that there was an insignificant positive relationship, while cash flows from investing activities and financing activities had insignificant negative effect on return on equity. It was therefore a general conclusion that fixed variables had insignificant influence on responding variable as was evidenced by ANOVA and summary residual values. The study findings through the adjusted R square revealed that there was negligible combined negative effect that the predictors had on return on equity. At the same time from The NOVA results, findings showed the regression model had less predictive power. The study recommended similar studies to be conducted probably in all banks both listed and unlisted including cross listed ones if this can provide more reliable results. The other recommendations were that banks should channel more cash to operating activities and less to investing and financing activities so as to generate more returns to shareholders. Finally the study had its share of limitations such as use of only quantitative data that might provide skewed results and researcher could not access data from other banks due to either acquisitions or mergers leading to reduced sample size which could compromise reliability of the results.