RELATIONSHIP BETWEEN WORKING CAPITAL MANAGEMENT PRACTICES AND FINANCIAL PERFORMANCE BY REGISTERED PROPERTY DEVELOPERS IN KENYA
DOI:
https://doi.org/10.47941/ijf.938Keywords:
Debtors' Management Practices, Inventory Management Practices, Cash Management Practices, Creditors' Management Practices, Financial PerformanceAbstract
Purpose: Working capital management is acknowledged as a very significant element in examining performance of firms. In property development sector, large developers dominate the market but there still exist a huge housing hollow. Property development firm faces challenges in areas of working capital management that limits them in fulfilling the housing needs of citizens and further exposes the firms to poor financial performances. The current study sought to establish the relationship between working capital management practices and financial performance by registered property developers in Kenya. Specifically, the study sought to investigate the relationship between debtors' management practices, inventory management practices, cash management practices and creditors' management practices and financial performance by registered property developers in Kenya.
Methodology: The study was anchored on Agency Theory, The Theory of Working Capital Management, The Trade- off Theory and The Pecking Order Theory. The population of the research was seventy-six registered property developers in Kenya. The unit of observation comprised of finance managers. A census approach was employed in the study. The study utilized both primary and secondary data where structured questionnaires were used to gather primary data while a secondary data collection was used in gathering secondary data from the respective firm's financial reports. Both inferential and descriptive statistics were employed in analyzing the collected data and results presented in form of tables and figures.
Findings: The results of the analysis revealed that Cash Management Practices, Debtors' Management Practices, Creditors' Management Practices and Inventory Management Practices positively and significantly relates with financial performances of registered property developers in Kenya. The study concluded that Cash Management Practices, Debtors' Management Practices, Creditors' Management Practices and Inventory Management Practices positively and significantly relates with financial performances of the property developers.
Unique contribution to theory, policy and practice: The study recommends the management of registered property developers in Kenya to enhance their practices in Cash Management, Debtors' Management, Creditors' Management and Inventory Management since the practices positively and significantly relates with financial performance of the property developers.
Downloads
References
Abdulrahman, S. M. (2014). The relationship between agency costs and financial performance of firms listed in Nairobi Securities Exchange. Unpublished MBA Thesis.
Bhunia, A., & Das, A. (2015). Underlying Relationship between Working Capital Management and Profitability of Pharmaceutical Companies in India. American Journal of Theoretical and Applied Business, 4(2), 27-36.
Chang, C.-C. (2018). Cash conversion cycle and corporate performance: Global evidence. International Review of Economics & Finance, 56, 568-581.
Chege, S. W., &Bett, S. (2019). Total Quality Management Practices and Performance of Organizations in the Real Estate Industry, Case of Property Developers in Nairobi City County, Kenya. International Journal of Current Aspects, 3(IV), 14-31.
Cyril, U. M., Ogbogu, N. B. G., & Emeka, N. P. (2020). Appraisal of the Impact of Earnings Management on Financial Performance of Consumer Goods Firms in Nigeria. Journal of Finance and Accounting, 8(1), 34-47.
Cytonn Investments (2018). Kenya Retail Sector Real Estate Report -2017. Accessed on February 12, 2018 from https://www.cytonn.com/research/article/kenya-retail-sector-real-estate-report-2017-and-cytonn-weekly-40-2017
Dobie, A. (2015). Debtors, Creditors and Financial Management. In Accounting at Durham Cathedral Priory (157-182). Springer.
Ebrahim L. Zahra M. &Azam J. (2012) The Relationship between Working Capital Management and Firm Characteristics: Evidence from Tehran Stock Exchange. International Journal of Business and Social Science, 3(14)
Ebrahim M. & Datin J.(2012). The Effect of Working Capital Management on Firm's Profitability:Evidence from Singapore. Interdisciplinary Journal of Contemporary Research in Business.4(5).
Faque, M. (2020). Cash management practices and firm financial performance: A comprehensive literature review. Bussecon Review of Finance & Banking (2687-2501), 2(2), 36-43.
Ghasemi, M., & AbRazak, N. H. (2016). The Impact of Liquidity on the Capital Structure: Evidence from Malaysia. International Journal of Economics and Finance, 8(10), 130-139.
Gamze V, Ahmet G, &Emin H. (2012) Effects of Working Capital Management on Firm's Performance: Evidence from Turkey. International Journal of Economics and Financial Issues, 2(4), 488-495.
Hassan et al., (2018) The effect of Working Capital Management and Growth of SMEs in Malaysia. Polish Journal of Management Studies, 16, 99-109
Ismail, R. (2016). Impact of liquidity management on profitability of Pakistani firms: A case of KSE-100 Index. International Journal of Innovation and Applied Studies, 14(2), 304.
Iluta A. & Svetlana I.(2013) The Relationship between Working Capital Management and Profitability: a Latvian Case. Global Review of Accounting and Finance 4(1), 148 - 158.
Kabethi, L. (2013). The Effect of working Capital Management Practices on the Financial Performances of Small and Medium Enterprises in Kenya (Unpublished Project). Nairobi
Kangangi, L. K. (2020). Working Capital Management Practices and Growth of Small and Medium-Sized Enterprises in Nyeri County, Kenya (Doctoral Dissertation, School Of Business In Partial Fulfillment Of The Requirements For The Award Of Degree Of Master Of Business Administration (Finance), Kenyatta University).
Kinuthia, D. N., Maimba, J. K., & Mwangi, L. W. (2020). Working Capital Management and Financial Performance of Listed Manufacturing Companies in Kenya. International Journal Of Business Management And Finance, 3(2).
Kung'u, J. N. (2015). Effects of Working Capital Management on Profitability of Manufacturing Firms in Kenya. Nairobi
Muhammad, A,& Syed, I. H. (2011). Impact of Working Capital Management on Firms"Ÿ Performance: Evidence from Non-Financial Institutions of KSE-30 indexes, Interdisciplinary Journal of Contemporary Research in Business, 3, 8.
Mwangi, E. (2015). The effect of corporate diversification on the financial performance of listed manufacturing firms in Kenya (Doctoral dissertation, University of Nairobi).
Mauwa, J. (2017). Determinants Of Financial Performance Of Firms Listed On The Rwanda Stock Exchange (Doctoral dissertation, COHRED, JKUAT).
Oganga, M. (2015). The Relationship between Working Capital Management and the profitability of Small and Medium Enterprises in Nairobi Kenya. Nairobi: University Press.
Orobia, L. A., Nakibuuka, J., Bananuka, J., & Akisimire, R. (2020). Inventory management, managerial competence and financial performance of small businesses. Journal of Accounting in Emerging Economies.
Pirttilä, M., Virolainen, V. M., Lind, L., & Kärri, T. (2020). Working capital management in the Russian automotive industry supply chain. International Journal of Production Economics, 221, 107474
Qureshi, M. A., Sheikh, N. A., & Khan, A. A. (2015). A revisit of pecking order theory versus trade-off theory: Evidence from Pakistan. Pakistan Journal of Commerce and Social Sciences (PJCSS), 9(2), 344-356.
Singh D.(2011) Net Working Capital Level and Return on Capital Employed In Firms of Cement Industries in India VSRD International Journal of Business & Management Research, 1 (4).
Wambia, W. O., & Jagongo, A. (2020). The effects of working capital management practices on the financial performance of insurance companies in Kenya. International Academic Journal of Economics and Finance, 3(5), 103-120.
Wafula, W. B., & Weche, E. B. (2018). Effect Of Private Asset Financing Loans On Financial Performance Of Real Estate Investment Firms In Nauru Town, Kenya.
Wang, B. (2019). The cash conversion cycle spread. Journal of Financial Economics, 133(2), 472-497.
Waithaka, A. (2012). The relationship between working capital management practices and financial performance of agricultural companies listed at the Nairobi Securities Exchange (Doctoral dissertation).
Waweru, C., & Ngugi, K. (2014). Influence of Financial Management Practices on the Performance of Micro and Small Enterprises in Kenya. European Journal of Business Management, 2(2), 141-161.
Wire, W. C. (2015). Influence of working capital management practices on financial performance of small and medium manufacturing enterprises in Nairobi County, Kenya (Doctoral dissertation, JKUAT).
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2022 Grace Wangari Njoroge, Gordon Opuodho
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
