Effects of financial risks on the financial performance of listed firms in Nairobi securities exchange, Kenya

  • Sylvia Nyangweso Makori
  • Willy Muturi

Abstract

Over the years decline of financial risk management is growing as a complex task. Financial managers are looking for ways to minimize risk for any organization but their complexity falls increasingly in the world of economic events.  The general objective of the study was to assess the effect of financial risks on the financial performance of listed firms in Nairobi Securities Exchange Kenya. The specific objectives of the study included: to assess the effect of liquidity risks on the financial performance of listed firms in Nairobi securities exchange Kenya, and to examine the effect of credit risks rating on the financial performance of listed firms in Nairobi securities exchanges Kenya. This study adopted a descriptive survey research design. The target population for this study comprised of all 66 listed companies in Kenya. Census sampling techniques was used to arrive at the sample size of 66 listed companies, in order to collect data required. Secondary data was collected using document review such as audited financial reports and financial journals. Data analysis was done using descriptive statistics. The researcher used descriptive statistical method of mean, standard deviation, percentages and frequencies to understand the characteristics of the variables. The study adopted correlation and regression analysis to establish the relationship between financial risk and financial performance of listed firms in Nairobi Stock Exchange. The analyzed data was presented in tables and graphs. Ethical issues were taken into consideration by maintaining high level confidentiality of the data collected. The findings revealed that liquidity risk has a significant effect on financial performance of listed companies in Nairobi Securities Exchange. Secondly, credit risk has a significant effect on financial performance of listed firms in Kenya. Further confirms that interest rate risk has a significant effect on financial performance of listed firms and debt management risk has a significant effect on financial performance of listed firms. In conclusion all firms involved in business would often times engage in credit lending to their clients and firms with borrowed funds are often financially distressed by the rise in interest rates and those intending to borrow are restricted to the covenants of the lenders.  Finally debt management in an internal firm issue that is dependent on the management boards’ decision. It is recommended that firms’ liquidity rate risk should be monitored at all times to ensure that liquidity is maintained at appropriate levels. Also credit rate risk should be clearly stated in the firms credit policy and measures put in place to review it depending on the circumstances.

Key words: Financial Risks; Financial Performance; Firms; Nairobi Securities Exchange; Kenya

Published
2018-10-15