FINANCIAL DECISIONS AND PROFITABILITY OF LARGE-SCALE RETAIL SUPERMARKETS IN KENYA

Abstract

Financial decisions ensure that supermarket managers invest in viable projects, stipulate optimum capital structure and adequately compensate shareholders. Poor financial performance has plagued large-scale retailers for the past 20 years, forcing some of their outlets to close. This study aimed to assess the effect of financial decisions on the profitability of large-scale retail supermarkets in Kenya. The specific objectives of the study were: to establish the effects of capital structure decisions on the profitability of large-scale retail supermarkets in Kenya; to evaluate the effects of investment decisions on the profitability of large-scale retail stores in Kenya, and; to examine the effects of dividend decisions on the profitability of large-scale retail stores in Kenya. The portfolio, pecking order, and agency theories gave the study direction. The study was founded on positivism where the cross-sectional research design was used. All the large-scale retail supermarkets were used in the study. Data was collected from audited financial statements. Panel Data was analyzed using descriptive and inferential statistics. Descriptive statistics comprised mean minimum, maximum, and standard deviation. Inferential statistics consisted of correlation analysis and random effects model. In order to guarantee that the assumptions of linear regression were not violated, the study performed a number of diagnostic tests. The study's diagnostic findings demonstrated that the assumptions of linear regression were upheld, making them appropriate for analysis. The results established that capital structure decisions negatively and statistically significantly affect profitability. This is supported by a regression coefficient of -0.6837 and a P-value of 0.000. A positive and statistically significant effect exists between investment decisions and profitability. This is backed up by a regression coefficient of 0.3930 and a p-value of 0.008. Finally, it was observed that dividend decisions positively and significantly affect profitability. The finding was based on a regression coefficient of 0.4180 and a p-value of 0.016. The study concluded that financial decisions significantly affect the profitability of large-scale retail supermarkets in Kenya. The study suggested that management should balance debt and equity funding for firms. It also recommends implementing viable investment decisions based on customer preferences, expert directions, market forces, and business elements. Finally, the management needs to formulate ideal dividend policies that compensate shareholders properly while ploughing back enough profits for future investments