Effect of Liquidity on Financial Performance of the Sugar Industry in Kenya

Abstract

Liquidity is one of the most important goals of working capital management and central task of revenue optimization and company’s financial performance. Equally, aggressive liquidity management is associated with higher corporate value, despite differences in structural characteristics or in the financial system of a firm. Given the recurrences of liquidity management in sugar industry this study sought to investigate the effect of liquidity management on firm performance using a sample of five sugar firms over the period 30th June 2005 to 2016. We estimate a random effects regression model where the results suggest that a negative relationship exists between liquidity management on firm performance. Based on the study findings the following policy recommendations are proposed and if implemented will help resuscitate the overall financial performance of factories in the sugar industry and hopefully reverse their financial performance fortunes. The study recommends that careful consideration and planning of funding liquidity management is one of the ways to financial performance and as such this study recommends that there is need for the sugar industry firms to increase their operating cash flow, to positively influence their financial performance.