Effect of Collateral Financing Agreements on the Financial Performance of Petroleum Companies in Kenya

Abstract

This study sought to establish the effect of Collateral Financing Agreements on the financial performance of firms in the Kenyan petroleum sector. The petroleum sector is becoming more internationalized and thus the financing of the procurement is also evolving. The sector is divided into three main sectors based on the steps from drilling to refinement and selling of the final products; the upstream, midstream and downstream sectors. This study used a quantitative descriptive design. The target population being all petroleum companies in Kenya. As per PIEA publication (2014), there are 35 firms in the sector which are directly and actively involved in downstream operations of petroleum. Both primary and secondary data was used to obtain the needed information. Data from the questionnaires was analyzed using percentage statistical method by the conversion of frequencies into percentages through the use of SPSS. The study concluded that indeed petroleum products purchased under CFA had a stronger and more positive Pearson correlation coefficient influence on the OMCs. Petroleum products purchased on cash was seen to have weak, positive significant correlation coefficient. This study therefore indicated that petroleum products purchased under CFA created a higher financial performance as it had a greater financial base compared to petroleum products purchased on cash. This evidence was also supported by the findings that showed the value of the F-statistic. This value indicated that the overall regression model is significant hence it has some explanatory value. Therefore increasing the volume of petroleum products purchased under CFA increases financial performance to a higher extent in comparison to increases the petroleum products purchased on cash. Based on the study findings, it is recommended that petroleum companies should consider more implementations of purchase of petroleum products under CFA so as to increase on the financial performance.