The Moderating Role of Firm Size on Financial Distress in Commercial and Manufacturing State Corporations in Kenya

Peter Njoroge Kibe (), Dr. Lucy Wamugo (PhD) () and Gerald Atheru ()

International Journal of Finance and Accounting, 2024, vol. 9, issue 4, 50 - 66

Abstract: Purpose: The study attempted to investigate the moderating effect of firm size on relationship between profitability, leverage, efficiency, and financial distress in Commercial and Manufacturing State Corporations in Kenya. Methodology: The study adopted positivist philosophy that required researcher to be independent of the study. Explanatory non-experimental research design was used in the study. For the purposes of this study, a census of all 25 Commercial and Manufacturing Corporations was employed in study. Study used Secondary data from audited accounts of State Corporations for period 2015-2021 in analysis. Data was obtained from office of auditor general and Kenya Parliament digital library. Researcher used Logit Regression Model to analyse quantitative data. Diagnostics tests included multicollinearity, heteroscedasticity and likelihood ratio tests and Hosmer-Lemeshow goodness of fit tests. Study used STATA Version 13.10 statistical software to analyse data and findings presented using tables Findings: The study established that firm size did not moderate the relationship between profitability, leverage, efficiency and financial distress in commercial and manufacturing state corporations in Kenya. In summary, the size of State corporations did not influence financial distress. Financial distress equally affected both small and big Commercial and Manufacturing State Corporations contradicting the theory of small firms. Unique Contribution to Theory, Practice and Policy: Top management of State Corporations should monitor key financial ratios including profitability, leverage and efficiency ratios. These ratios will assist those charged with governance in developing strategic plans and turnaround strategies to bring back to life the distressed state corporations so that they can contribute positively towards growth of the economy. The study concluded that there is a dire need by State Corporations to reduce reliance on government loans and bailouts by engaging efficiently in profitable ventures that would maximise the wealth of the firm. The study also concluded that profitability, leverage and efficiency were useful ratios to management and those charged in detection and mitigation of financial distress. The study recommended that in order to increase profitability, commercial and manufacturing state corporations should improve their operational efficiency and reduce use of debt particularly the government guaranteed loans.

Keywords: Firm Size; Profitability; Leverage; Efficiency; Financial Distress (search for similar items in EconPapers)
Date: 2024
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