Abstract:
he government of Kenya’s broad target under enhancing manufacturing is to increase the
manufacturing share of gross domestic product from 8.4% to 15% to create more jobs but
the target remains a mirage owing to the poor performance of the manufacturing sector
over years where for instance, sector performance declined to 3.5% in 2019 compared to
4.4% in 2018. Studies globally, regionally and locally have been conducted to establish
how macroeconomic variables affect profitability of companies. However, mixed results
have been reported pointing to positive, negative, significant and insignificant effect
making it unknown as to how economic growth, inflation and exchange rates influence
performance of manufacturing firms. The purpose of this study was to establish the
influence of selected macroeconomic variables on financial performance of listed
manufacturing companies in Kenya. Specifically, the study aimed to; assess the influence
of economic growth on financial performance of manufacturing firms registered at the
NSE, evaluate the influence of inflation on financial performance of manufacturing firms
registered at the NSE and examine the influence of exchange rate on financial performance
of manufacturing firms registered at the NSE. The study was guided by; efficient market
hypothesis, purchasing power parity and arbitrage pricing theory. This study adopted
descriptive correlational research design grounded on panel data spanning 6 years from
2015 to 2020 with a target of 8 listed manufacturing firms. Panel data analysis was
deployed to establish the influence of economic growth, inflation and exchange rates on
financial performance. Economic growth and inflation had a positive significant influence
while exchange rates showed negative influence on performance with coefficients 0.358,
2.764 and -1.532 respectively such that 1% increase in economic growth and inflation
increased performance by 0.358% and 2.764% respectively while 1% increase in exchange
rate decreased performance by 1.532%. The study recommends formulation of prudent
macroeconomic policies including bail outs during pandemics are geared towards
enhancing performance of manufacturing firms as envisaged under the Big four agenda
and Vision 2030 blue print.
