Factors that Influence Financial Performance of Agricultural Firms Listed in the Nairobi Securities Exchange

A Dissertation Report Submitted to the Chandaria School of Business in Partial Fulfillment of the Requirement for the Award of the Degree of Doctor of Business Administration (DBA)The agricultural sector is a significant contributor to the economy in most countries in respect of food security and the creation of employment. Nonetheless, the declining trends over the years due to the changing climate and related factors have affected its performance. This has greatly affected the economic growth of most countries in sub-Saharan Africa. Therefore the suboptimal financial performance of the agricultural companies is an issue that requires attention, especially in Kenya. While past studies have identified both internal and external factors as key determinants of a firm‘s performance, few studies have been done on factors influencing the financial performance of listed agricultural companies, especially in developing economies. This study therefore sought to establish the factors that influence performance of agricultural firms listed in the Nairobi Securities Exchange. Specifically, the study looked at the influence of liquidity, ownership structure, company size, sales growth, operating cost efficiency, and internal and external factors on the financial performance of agricultural firms listed at the Nairobi Securities Exchange. The study adopted a positivistic philosophy since the challenge notion was the relation between variables (cause and influence). The research design adopted was descriptive and causal (explanatory) so as to enhance a complex analysis intended to bring out the correlation of variables and to establish how one variable affects changes in another. A census approach was adopted and all the seven listed agricultural companies were taken as the population. The respondents‘ sample was from finance departments at all levels and 220 questionnaires were administered which registered a response rate of 68.2%. Secondary data was sourced from Nairobi Securities Exchange and Capital Market Authority records. The particular inferential statistic was regression and correlation analysis. Panel data methodology was employed using a multivariate regression model to test the hypotheses and link the variables. The study found out that liquidity has a positive influence on return on assets (ROA). In addition, the findings revealed that liquidity has a positive influence on return on equity (ROE). On the influence of ownership structure on Financial Performance of Companies, results revealed that ownership structure had negative influence on return on assets (ROA) of the seven listed agricultural companies in the NSE. The results showed that company size has a positive influence on return on assets (ROA). The study also revealed that company size has a positive and significant relationship with ROE and EPS. Findings on the influence of sales growth on return on assets (ROA) showed that sales growth has a positive influence and that the variations in ROA can be explained by sales growth. The results showed that operating cost efficiency has a positive influence on return on assets (ROA). The findings also revealed that interest rate has a positive and significant relationship with ROA, ROE and EPS. A majority of the respondents indicated that interest rate has a greater impact on ROA, moderate impact on ROE and greater impact on EPS. Lastly, the findings revealed that board size has a negative and insignificant relationship with ROA, ROE and EPS. Board size has a moderate impact on ROA, moderate impact on ROE and low impact on EPS. It is theref ore recommended that for better performance, financial managers should ensure that there is no mismatch between the current assets and current liability to maintain liquidity. They should also employ mixed financing. At the same time, it recommends large firms over small firms for economies of scale and encourages them to focus on growth opportunities in the long term. Operating expenses should be reduced to the efficiency frontier when focusing on revenue expansion. Board size and interest rates should be determined and regulated since they affect the financial performance