The relationship between working capital management and stock returns of firms listed at the nairobi securities exchange

Abstract

Working capital management is considered to be a very important element to analyze the organizations’ performance while conducting day to day operations, by which a balance can be achieved between liquidity and profitability. Stock returns is a measure of how a firm’s management is able to earn to its shareholders or owners of capital. The main research objective of this study was to examine the relationship between working capital management and stock returns of NSE listed companies. The study used descriptive research design. All public companies listed at the Nairobi Stock Exchange formed the population of interest and which as at 31st December 2014 were Sixty four (64). The research study relied on the use of secondary source of data. The secondary data was derived from audited financial statements of listed companies at the Nairobi Stock Exchange (NSE). Data was analyzed with the aid of scientific software so as to show the impact of working capital management on stock returns among publicly listed companies in Kenya over time. Descriptive measures of mean and standard deviation was used to analyze the specific objective. Regression analysis was used to determine the relationship between the dependent and independent variables. The results revealed that the relationship between inventory days and stock returns is strong, positive and statistically significant. Similarly, the relationship between account payable days and stock returns rate is strong, positive and statistically significant. The relationship between account receivable days and stock returns was also significant and strong. The study recommends that there should be proper inventory management system in Nairobi to avoid working capital mismanagement. Management of listed companies should put in place working capital management systems to increase stock returns