WORKING CAPITAL MANAGEMENT AND FINANCIAL VALUE OF COMMERCIAL BANKS IN KENYA

Abstract

The idea of firm value has drawn a lot of attention from stakeholders throughout the world, including shareholders, managers, potential investors, creditors, and others. This is due to the fact that it establishes a favorable public perception and measures the firm's value. Even with the use of various working capital management measures, commercial banks' overall performance is on the decline, which has a detrimental effect on their financial value. The main objective of the study was to establish the effects of working capital management on the financial value of commercial banks in Kenya. The specific objectives were, to assess the effects of cash management on the financial value of commercial banks in Kenya, to examine the effect of receivable management on the financial value of commercial banks in Kenya and to establish the effects of payable management on the financial value of commercial banks in Kenya. The study was guided by Cash conversion theory, transactions theory and contingency theory. In order to analyze the panel data gathered over a ten-year period, correlation research design was used. 38 commercial banks in Kenya made up the target population. A secondary data collection sheet was used to record data from audited financial statements that were downloaded from the websites of the Central Bank of Kenya and the Nairobi Stock Exchange. Shapiro-Wilk was used to establish normality. The Levin-Lin-Chu test was used to determine stationarity, and the findings suggest stationary properties. Since the variance inflation factors used to test for Multicollinearity were found to be less than 10, Multicollinearity was deemed to be absent in the independent variables. The Breach Pagan test was used to evaluate heteroscedasticity. In order to confirm homoscedasticity, the probability of the Chi-square with 2 df was 0.21 > 0.05 at the 5% level of significance. The Durbin-Watson test was employed to assess auto-correlation. The outcomes showed a value of 1.988, which indicates that there is no autocorrelation. Measures of mean, standard deviation, and variance formed the descriptive statistics. The overall descriptive statistics demonstrate significant heterogeneity among various commercial banks between the dependent and independent variables. Pearson's correlation analysis and the Random Effects Model were used in inferential statistics. The Pearson's correlation coefficient showed a coefficient of r = 0.48 with a p-value of 0.000 for financial value and cash management, r = - 0.15 with a p-value of 0.0037 for financial value and payables management, and r = 0.52 with a p-value of 0.000 for financial value and receivables management. The cash management, receivables management, and payables management regression coefficients were established as 0.02, 4.34, and 2.08 with p-values 0.05, demonstrating that all the factors had a significant positive influence on the financial worth of commercial banks. Commercial banks were advised to increase their income generation and return on assets. Commercial banks should be majorly concerned with how effectively they use fixed assets. Commercial banks should properly manage short term liabilities, pending bills and accrued expenses should be minimal as this reduces liquidity of the firm and further reduces the value of the commercial banks as potential investors see a bank with so many liabilities as risky to invest in. All receivables particularly outstanding loans issued to customers should be closely monitored.