The Effects of Working Capital Management on Returns to Shareholders of Manufacturing Companies Listed at the Nairobi Securities Exchange

Abstract

Working Capital Management remains one of the most challenging tasks in day-to-day running of manufacturing enterprises. This is partly due to the complexity of attaining optimal Working Capital levels for manufacturing entities in competitive business environments with several intervening factors that may influence internal WCM initiatives. The complexity also stems from the fact that most WCM decisions involve a trade-off between risk and rewards of holding working capital assets. Most of the time, getting the best balance involves obtaining concurrence with external parties not privy to your short term or longer interest and those pursuing their own interests that may be in conflict with your own. This study looked at the effect of WCM on returns to shareholders of manufacturing companies listed at the Nairobi Securities Exchange. The WCM measures taken for this study were ICP, ACP and APP. The research relied on exploratory research design and used secondary data obtained from various sources including published hard copies of audited financial statements available in libraries and soft copies from respective company websites. Pierson Correlation was used to determine degree of association between the variables, while multiple regression analysis was used to ascertain the relationship between the dependent variable and the independent variables. The analysis was conducted using SPSS and the findings reveal significant association between the independent variables ICP, ACP and APP and an equally significant relationship between the independent variable and the dependent variables. The research revealed a significant degree of influence of WCM in determining the level of returns to shareholders (RTS). It underscored the importance of setting optimal levels of net WC that would result in to higher RTS. These levels may differ from one company to the next.