Effect of Working Capital Management on the profitability of Kenyan firms
Katola, Nashon Mulwa
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This study seeks to provide empirical evidence about the impact of Working Capital Management (WCM) on the profitability of Kenyan listed firms. This is necessary since Working Capital Management affects both liquidity and profitability of firms and thus it is necessary for firm survival. A sample of 20 firms is chosen from five sectors of the NSE, based on market capitalization as at 2014. The study uses the fixed effects model in order to show the relationship between working capital management components and profitability and also show the effect of aggressiveness of working capital management strategies on profitability of firms listed in the Nairobi Securities Exchange. The study finds that individual working capita1 management components affect profitability but the effect is not significant to all sectors. Also, the relationship can either be negative or positive between different firms. Therefore, firm managers should employ proper working capital management strategies in order to yield the best results depending on what is best for them. An improvement in the firm's performance shall increase the firm value and eventually shall be of great importance to the shareholders of the company. Both the level of aggressiveness and conservativeness affect profitability of firms listed in the NSE. Therefore, firm managers should employ the best strategy for their firm in order to increase their profits.