The Relationship between Inventory Management and the Financial Performance of Manufacturing Companies in Kenya

Ndung'U Stephen
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Ndung'U Stephen: ST. Paul's University, Kenya.

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Abstract: The purpose of this paper is to examine the relationship between inventory management and the financial performance of manufacturing entities focusing on total inventory and its constituent components of raw materials, work in progress and finished goods inventories. The paper focused on the relationship between inventory management and the financial performance of manufacturing entities in Kenya. The research is grounded on the theory of storage which highlights the benefits of holding optimal inventories of commodities as a way of enhancing financial performance. The paper adopted an analytical research design in order to get a better understanding of the relationship between the independent variables and the dependent variable. The target population consists of five hundred and two manufacturing companies in Kenya from which a representative sample of two hundred and eighteen companies was selected through stratified and random sampling from the key sectors as classified by the Kenya Association of Manufacturers (KAM). Panel data for a ten year period was collected and analysed using short run and dynamic models. Appropriate specification tests were conducted to ensure integrity of the results. The researcher came to the conclusion that raw materials, work in progress and total inventory have a negative effect on the financial performance of manufacturing entities while finished goods inventory effect is positive. The null hypothesis that inventory management does not have a significant relation with the financial performance of manufacturing companies in Kenya was rejected in favour of the alternative hypothesis that inventory management influence the financial performance of manufacturing companies in Kenya but this is dependent on the type of inventory. The researcher recommends that manufacturing entities in Kenya should pay special attention to inventory management in order to enhance their financial performance.

Date: 2022-02-24
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Published in Asian Journal of Economics, Finance and Management , 2022, 4 (1), pp.102-113

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05148326

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