The relationship between working capital management and the systematic risk companies quoted at the Nairobi Stock Exchange
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 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 relationship between working capital management and firm's stock beta. The study used secondary data obtained from annual reports and financial statement of companies listed on the Nairobi Stock Exchange. A sample of 22 companies listed on the Nairobi Stock Exchange for a period of seven years from 2003 to 2009 was studied to determine the relationship between working capital management components and 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 we used as control variables. Pearson's correlation and regression analysis (pooled least square) were used for analysis. The results show that there is no a 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.