EFFECTS OF EARNING MANAGEMENT DETERMINANTS ON FINANCIAL PERFORMANCE OF TEA PROCESSING FACTORIES IN NANDI COUNTY, KENYA. MODERATING ROLE OF FIRM SIZE
Grace Magoma Tora - School of Business and Economics, Kisii University, Kenya
Dr. Andrew Nyang’au PhD - School of Business and Economics, Kisii University, Kenya
Dr. Akuku PhD - School of Business and Economics, Kisii University, Kenya
ABSTRACT
Dividends are important to shareholders and potential investors in showing the earnings that a company is generating. A major determinant of dividend payment is the anticipated level of future earnings. Healthy dividend payouts thus indicate that companies are generating real earnings rather than cooking books. The dividend payment is one of the major drivers for investing in stocks has been center of interest among stakeholders mainly investors, management and academic fraternity in an attempt to find out the determinants of dividend payout. The general objective of this study was to determine the effects of earning management determinants on financial performance of tea processing factories in Nandi County, Kenya. Moderating role of firm size. The specific objective of the study was to; examine the relationship between liquidity on financial performance of tea factories in Nandi County. The study was anchored on the following theories: Dividend irrelevance theory and Bird-in-hand theory. A cross-sectional research design was adopted. The target population was 19 tea factories. The sample size was 18 tea processing companies selected through stratified-random sampling. Data was collected using a data sheet from annual reports. Data collected was analyzed using both descriptive (minimum, maximum mean and standard deviation) and inferential statistics (correlation and regression analyses) with the aid of SPSS version 20.0 and the findings was presented using tables and figures. The study found out that thus Kapsumbeiwa Tea Factory had the highest liquidity leading higher financial performance while Tinderet Tea Estate had the lowest liquidity. Higher liquidity enhances financial performance. The study further discovered that liquidity had strong but negative correlation with financial performance of tea factories in Nandi County r=-.584(**), P=.000<0.01. Thus any changes in liquidity led to a significant decline in financial performance of tea factories in Nandi County. Additionally it was noted that liquidity had a negative but significant effect on financial performance of tea factories in Nandi county r=-.091, t=-7.391, P= .000<0.05. Thus a unit change in liquidity led to decline in financial performance of tea factories significantly. The study recommended that tea factories should manage carefully the number of shareholders on board at any given time.