LIQUIDITY MANAGEMENT AND PROFITABILITY OF CONSTRUCTION AND ALLIED FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA
LIQUIDITY MANAGEMENT AND PROFITABILITY OF CONSTRUCTION AND ALLIED FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA
Linet Akoth Ouko - Master of Business Administration Student, Department of Accounting and Finance, School of Business, Economics and Tourism, Kenyatta University, Kenya
Dr. Moses Odhiambo Aluoch, (PhD) - Lecturer, Department of Accounting and Finance, School of Business, Economics and Tourism, Kenyatta University, Kenya
ABSTRACT
Listed firms in Kenya’s construction and allied industry have reported decline in profitability for the past few years, with some facing liquidation and takeovers. Moreover, despite having extensive research that investigate the how managing liquidity influences attaining profitability in listed firms in Kenya, their focus is not specific to the construction and allied sector. Liquidity management plays a critical role in organizations because it may affect their relationship with creditors. This is among the determinants of a firm’s financial position along with profitability. Efficiency in managing liquidity factors such as inventory, receivables, cash and cash equivalents, and payables plays a critical role in optimizing business performance. Specifically, this study focuses clearly on investigating how liquidity management influences profitability of firms in Kenya's construction and allied sectors. The objectives are: how inventory, receivables, cash and cash equivalents and payables relate to profitability for listed construction and allied firms in Kenya. This study is anchored with Dynamic theory, liquidity preference theory, finance distress theory, operating cycle theory and pecking order theory. Secondary data was employed through annual reports from the contractions and allied listed firms from 2019 to 2023. The study descriptive research design and the analysis was performed using descriptive and inferential statistics with a significance test level of 0.05. Diagnostic tests such as Normal, Multicollinearity, linearity and Homoscedasticity were performed. Ethical standards were maintained throughout the study including authorization from the university and the National Commission for Science, Technology and Innovation. The study found that inventories, receivables, cash and cash equivalent and payables all have insignificant effect on the profitability of construction and allied firms listed in Kenya. These results concur with previous studies that liquidity management has not significant effect on profitability of contractions and allied firms in Kenya. The therefore concludes that liquidly management has no significant effect on profitability of constructions and allied firms in Kenya. The study therefore recommends more research on other sectors of the market since liquidity management plays a major role in the operations of the firms.
