FINANCIAL MANAGEMENT PRACTICES AND PROFITABILITY OF COMMERCIAL AND SERVICE FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA
FINANCIAL MANAGEMENT PRACTICES AND PROFITABILITY OF COMMERCIAL AND SERVICE FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA
Ephie Leah Amadi - Master of Business Administration Student, Department of Accounting and Finance School of Business, Economics and Tourism, Kenyatta University, Kenya
Dr. Moses Odhiambo Aluoch (PhD) - Lecturer, Department of Accounting and Finance, School of Business, Economics and Tourism, Kenyatta University, Kenya
ABSTRACT
Despite the critical role that Nairobi Securities Exchange listed firms play in mobilizing capital and driving Kenya’s economic activity, many commercial and service firms continue to report uneven and, in some cases, declining profitability. This variability in profit performance occurs against a macroeconomic backdrop of shifting monetary conditions and modest inflation, which directly affect firms’ cost of capital, working capital pressures and investment decisions. Therefore, this study sought to investigate financial management practices effects on profitability of commercial and service firms listed at the Nairobi Securities Exchange. Specifically, it aimed at ascertaining effects of the management practices of investment, dividends, working capital management and financial structure on profitability. The review was anchored by theories of Modern Portfolio, Trade-Off, Irrelevance Dividend, Liquidity Preference and Agency Theory. Explanatory research design was employed. 11 listed commercial and service firms at NSE formed target populace and all were examined through a census method. Time series data which is secondary was utilized and was gathered by a data extraction checklist spanning 2015 to 2024. Data was analyzed using Stata version 2014. Diagnostic tests were performed and quantitative data analysis was via descriptive (mean, percentage, standard deviation and frequencies) and inferential statistics (correlation and regression). Ethical principles were upheld throughout the research process. The researcher ensured that all data sources are credible, reliable, and used with integrity. Data was handled with professionalism, and findings were presented accurately, without manipulation or misrepresentation. The results showed all four financial management practices significantly, statistically affect profitability of Nairobi Securities Exchange -listed commercial and service firms. Correlation analysis showed that financial structure, working capital management, dividend management, and investment management had strong positive relationships. Regression results confirmed that financial structure was the strongest predictor, followed by working capital management, dividend management, and investment management. Finally, the research findings suggest that the management of the commercial and service firms in Kenya should pursue a systematic portfolio diversification strategy and critically analyze their cost of capital and their leverage capacity to enable them to sustain borrowing to drive growth without taking too much financial risk. Also, a long-term and effective dividend policy between shareholder payout and reinvestment requirement must be adopted based on earnings stability and prospects of future investments to come up with an ideal payout ratio. In addition, effective cash management, optimal inventory to reduce holding costs and well-planned credit policies, which guarantee prompt payment by customers, is highly recommended.
