Financial Structure and Liquidity of Manufacturing Firms Listed at the Nairobi Securities Exchange, Kenya
Keywords:
Debt Financing, Equity Financing, Financial Structure, Short Term Finance, Liquidity and Manufacturing FirmsAbstract
Purpose: This study examined the relationship between financial structure and liquidity among manufacturing firms listed on the Nairobi Securities Exchange. The study specifically assessed the influence of short-term financing, debt financing, and equity financing on the liquidity position of these firms.
Methodology: The research adopted a descriptive research design targeting all nine manufacturing companies listed on the Nairobi Securities Exchange as of December 2023. Due to the small population size, consensus sampling was applied to include all firms in the analysis. Secondary data were collected from financial statements for a five-year period (2019–2023). Liquidity was measured using the cash ratio as a proxy indicator.
Data analysis involved both descriptive statistics and inferential statistics. Diagnostic tests including normality, autocorrelation, and multicollinearity were conducted to ensure the reliability of the regression model. Hypothesis testing was carried out at a 5% significance level.
Findings: The results indicate that short-term financing has a positive and statistically significant effect on the liquidity of manufacturing firms. Conversely, debt financing and equity financing were found to have no statistically significant influence on liquidity. These findings suggest that effective management of short-term financing plays a critical role in sustaining liquidity levels within manufacturing firms.
Unique Contribution to Theory, Practice and Policy: The study contributes to financial management literature by providing empirical evidence on the relationship between financial structure and liquidity within the Kenyan manufacturing sector. Practically, it highlights the importance of efficient short-term financing strategies for liquidity management. From a policy perspective, the findings offer insights for corporate managers and regulators in improving financial structuring decisions to enhance firm liquidity and financial stability.
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