The Effects of financial risk management on the performance of agricultural companies listed at Nairobi Securities Exchange (NSE)
Date
2021
Authors
Mwangi, Lucy Wanjiku
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Journal ISSN
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Publisher
Strathmore University
Abstract
The effects of financial risks has been one of the major challenges that companies are facing today. This is due to the changing business environment, globalization and increase in competitors among many others. The study examines the effects of financial risk management on the performance of agricultural firms listed in the Nairobi Securities Exchange. Descriptive research design was used to examine the effects of financial risk management on the performance of agricultural firms listed at the NSE. Data was collected from 10 consecutive years (2010-2019). Secondary data was collected and analyzed using descriptive statistics. Out of the six agricultural companies data from only five was obtained thus a response rate of 80%. Data was collected from annual reports and financial statements of the companies from the year 2010-2019. From the results of the descriptive statistics, liquidity risk management depicted a positive effect on the performance. The companies maintained high level of liquidity through sustainable level of current liabilities, current ratios above zero and higher levels of operating cash. This improves the level of production levels hence a higher level of net income. Credit risk management also has a positive impact on performance. From the results of descriptive statistics, the companies maintained low levels of bad debts which will reduce their provisions for bad debts. This in turn results to higher profits and a higher net income. In addition, operational risk management depicts a positive impact on performance. Higher sales to working capital ratios increases the ability of the company to generate higher level of sales from utilizing their working capital ratios. This results to higher level of income and hence higher return on equity ratios. The study concluded that companies should adopt risk managements practices that are effective in order to manage liquidity, credit and operational risk as their occurrence can negatively affect performance. In addition, the study concluded that further studies be done which will be inclusive of market risks, interest rates risk and commodity price risks.
Description
A research project submitted in partial fulfillment of the requirements for the Degree of Bachelor of Commerce