A survey of corporate cash management practices of firms listed at the Nairobi Stock Exchange

Abstract

The objective of the study was to survey the cash management practices of firms quoted at the NSE and to assess the preferences of these companies on several cash management policies and investment criteria for marketable securities that one considers when investing idle cash in short-term securities. Data was gathered through questionnaires. The results showed that most of these corporations have departments dedicated to cash management and most of them have their cash management function centralized. These companies hardly consider keeping liquid cash for speculative motives but most of them maintain target bank cash balances. The short-term market is poorly developed in Kenya and these securities are not extensively purchased; it appears that there is a lack of aggressiveness in investing excess temporal cash. These companies consider default risk followed by yield as the most important characteristics to consider when investing idle cash in marketable securities. The results show that these corporations consider "speeding of receivables" to be a more important cash management policy than slowing of payables." Some of the methods used to speed up the receivables are: lock-box, concentration banking, net settlement system, depository transfer cheques and pre-authorized debits. Some of the· methods use to slow the payment of payables are: centralized payables, payable drafts, zero balance accounts, mailing cheques from distant post office, holding cheques for several days after its postmarked and writing cheques on distant banks. These corporations use banks to manage their payroll, invest in short-term securities and to transfer funds.