The relationship between financial risk management and efficiency of manufacturing firms in Kenya

Abstract

A number of studies have been done in various firms viewing the problem of risk management as the need to control risks which make up most, if not all, of their risk exposure. Studies in Kenya have only focused on risk management practices of firms in general without being specific on the financial risk management practices of manufacturing industry. This study sought to establish the relationship between financial risk management and efficiency of manufacturing firms in Kenya. The researcher used descriptive design. The population was 50 manufacturing firms. A sample of 40 firms was selected and 36 took part in the final survey. Both primary and secondary data were collected. The primary data was collected using questionnaires while secondary data was collected from the annual statements. Data was analysed using descriptive analysis and regression analysis. The results are presented in tables. The study found that the most managed financial risk in the manufacturing sector was foreign currency risk (mean score = 4.22) while the least managed financial risk was commodity price risk (mean score = 1.78). The study also revealed that currency risk, interest rate risk, and commodity price risk management practices had insignificant negative influences on firm efficiency (R = -0.121, -0.126 and -0.116 respectively). The study concludes that financial risk management is negatively related with efficiency of manufacturing firms in Kenya. The policy makers need to put up more stringent policies for the manufacturing firms to better manage financial risks. The study recommends need for manufacturing to entrench more measures to manage financial risks as the level of use of instruments to manage such risks is still low.