Working Capital Management, Free Cash Flows and Financial Performance: Evidence from Commercial State Corporations in Kenya

Walter Onkundi Chanua, Dr. Kennedy Okiro and Dr. Fredrick Ogilo
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Walter Onkundi Chanua: Department of Finance and Accounting, Faculty of Business and Management Science, University of Nairobi, Kenya
Dr. Kennedy Okiro: Department of Finance and Accounting, Faculty of Business and Management Science, University of Nairobi, Kenya
Dr. Fredrick Ogilo: Department of Finance and Accounting, Faculty of Business and Management Science, University of Nairobi, Kenya

International Journal of Research and Innovation in Social Science, 2025, vol. 9, issue 7, 199-214

Abstract: This study aimed to investigate the mediating role of free cash flows in the relationship between working capital management and financial performance among commercial state corporations in Kenya. The research sought to determine how free cash flows influence the effectiveness of WCM in driving the financial performance of these corporations. Free cash flow theory was used to guide the study, emphasizing how efficient management of working capital leads to surplus cash flows that enhance financial performance and shareholder value. The study employed a positivist philosophy, using secondary data sourced from the annual reports of the 28 commercial state corporations in Kenya over the period 2014 to 2023. Regression analysis was utilized to assess the mediating effect of free cash flows. The results indicated that free cash flows significantly mediated the relationship between working capital management and financial performance, with corporations that managed their working capital more effectively demonstrating better operational efficiency and higher profitability. These findings suggest that improving working capital management not only directly enhances financial performance but also does so by increasing the availability of free cash flows for reinvestment and strategic allocation.

Date: 2025
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