The relationship between capital budgeting techniques and financial performance of non-financial firms listed at Nairobi securities exchange

Abstract

The main objective of this study was to investigate the relationship between capital budgeting techniques and financial performance of non-financi al firms listed at Nairobi Securities Exchange. The study employed a descriptive design t o determine the relationship between capital budgeting techniques and financial performa nce of non-financial firms listed at Nairobi Securities Exchange. The target population consisted of all the 50 non-financial companies listed at The Nairobi Securities Exchange as at 30 th December 2013 (see appendix II). The study employed a census survey, because NS E had only 50 non-financial firms that were listed, therefore the whole population of the companies was included in this study. Thus, no sampling procedure was conducted. The stud y employed both primary and secondary data. The data was collected through ques tionnaires which were administered by the researcher using drop and pick later method. Th e secondary data was collected from the published accounts of the companies. The published accounts were obtained from Capital Markets Authority (CMA) and NSE library. Regression analysis was used to test the relationship between capital budgeting techniques a nd financial performance. The study established that holding all factors (Capital budge ting techniques, size of the firm and age of the company, factors affecting return on investment . The findings presented also shows that taking all other independent variables at zero, a u nit increase in capital budgeting techniques will lead to an increase in the scores of return on investment. A unit increase in size of the firm will lead to an increase in return on investme nt. On the other hand, a unit increase in age of the company will lead to an increase in the scor es of return on investment. This infers that age of the company influences return on investment most followed by capital budgeting techniques and size of the firm. The study also est ablished a significant relationship between return on investment and the independent variables; capital budgeting techniques and age of the company. The results of the regression analysis show that the capital budgeting techniques significantly affect firm performance, m easured by return on investments. Ranking of the individual independent variables, it shows that, age of the company is highly related with return on investments, followed by cap ital budgeting techniques, size of the firm respectively. Theoretically, the use of sophisticat ed capital budgeting techniques should increase the effectiveness of the firms’ performanc e. Thus, the results of this study concurred with the four theories that underpin the study. Ba sed on the findings the study recommends the managers feel that capital budgeting is at time s implemented without adequate education to implementers and ill fitting financial and opera ting structures.