FINANCIAL RESTRUCTURING AND FINANCIAL PERFORMANCE OF LISTED MANUFACTURING FIRMS IN KENYA

Abstract

Manufacturing firms have put in place financial restructuring strategies such as restructuring debt to save the firms from insolvency, adopting no dividend policy to use internal funds to finance investments and thus reduce debt burden but despite that have continued to experience declined financial performance. The study's main objective was to assess the effect of financial restructuring on the financial performance of listed manufacturing firms in Kenya. The specific objectives were: to examine the effect of capital restructuring on financial performance, to establish the effect of portfolio restructuring on financial performance and to evaluate the effect of dividend policy restructuring on the financial performance of listed manufacturing firms in Kenya. The study was anchored on the Trade-off theory, life cycle theory, Markowitz's modern portfolio theory and pecking order theory. The study was guided by positivist research philosophy. The study adopted a longitudinal research design. The study was carried out in all eight manufacturing firms listed on the Nairobi Securities Exchange from the year 2012 to 2021. Secondary data collection sheet was used to collect data from audited financial statements and annual reports. Panel data was analyzed using STATA. Both descriptive and inferential statistics were generated. All the diagnostic tests indicated that the variables conformed to the requirements of linear regression. The regression coefficient for portfolio restructuring was 0.410 with a p-value of 0.016, indicating that a unit increase in the acquisition of fixed assets increases financial performance. Capital restructuring had a regression coefficient of -0.267 and a value of 0.017, indicating that the variable was significant and that a unit increase in debt capital reduced financial performance by 0.267 units. The dividend policy restructuring regression coefficient was 0.531 showing that an increase in dividend payout ratio by one unit increased financial performance by 0.531 units and a value of 0.012 showed that the variable had a significant effect on financial performance. The study concluded that capital restructuring, portfolio restructuring, and dividend policy restructuring significantly affected financial performance. The study recommended that manufacturing firms minimize debt usage, minimize overinvestment in fixed assets and adopt a dividend policy that ensures a balance between capital gains and payment of dividends to improve financial performance. The study might be valuable to the government, policymakers and managers in manufacturing firms, as it will give information on financial restructuring that should be implemented to attain optimal capital structure, asset mix and dividend policy that maximizes financial performance