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Financial Risk Management Practice in Manufacturing and Allied Companies Listed On the Nairobi Securities Exchange

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dc.contributor.author Wanyama, Brian Situma
dc.date.accessioned 2016-10-18T07:38:05Z
dc.date.available 2016-10-18T07:38:05Z
dc.date.issued 2016
dc.identifier.uri http://erepo.usiu.ac.ke/11732/2810
dc.description A Project Report Submitted to the Chandaria School of Business in Partial Fulfillment of the Requirement for the Degree of Masters in Business Administration (MBA) en_US
dc.description.abstract In recent years manufacturing companies in Kenya have faced financial risks that have threatened their operations forcing others to close down. These financial risks include exchange rate risk due to weakening of the Kenya shilling against other currencies, interest rate risk, commodity price risk and liquidity risk. It is important to study how these companies manage these financial risks. The purpose of this study was to examine the financial risk management practice in manufacturing and allied companies listed on the Nairobi Securities Exchange. The study sought to answer the following research questions: What is the exchange rate risk management practice in manufacturing and allied companies? What is the interest rate risk management practice in manufacturing and allied companies? What is the commodity price risk management practice in manufacturing and allied companies? What is the liquidity risk management practice in manufacturing and allied companies? A descriptive research design was utilized to get a valid conclusion on the research questions mentioned above. The target population comprised of the ten manufacturing and allied companies listed on the Nairobi Securities Exchange. Primary data was collected through the use of questionnaires distributed to purposively selected employees in finance/accounts departments of the manufacturing and allied companies. 53 questionnaires were issued as shown in the sample frame. The research was conducted during the months of May to July 2016. Data analysis was done through descriptive and regression statistics and presented in the form of tables and figures. The data was coded using Statistical Package for Social Sciences (SPSS version 20) in order to generate the descriptive statistics in the form of percentages, mean, standard deviation and regression statistics in the form of ANOVA and coefficients tables. The study revealed that manufacturing and allied companies listed on the Nairobi Securities Exchange have documented financial risk management policy in place. Senior management of these companies support monitoring and evaluation of financial risk. Manufacturing and allied companies frequently use forwards to manage exchange rate risk and they rarely use futures, swaps, and options to manage exchange rate risk. The study also revealed that manufacturing and allied companies don’t have strong mechanisms of transferring interest rate risk to third parties. These companies rarely use forwards, futures, swaps and options to manage interest rate risk. The study further revealed that manufacturing and allied companies listed on the Nairobi Securities Exchange don’t split risk into currency and commodity components so as to assess both risks independently. These companies frequently use forwards and futures to manage commodity price risk while they rarely use swaps and options to manage commodity price risk. The study finally revealed that manufacturing and allied companies listed on the Nairobi Securities Exchange don’t maintain sufficient cash flow to meet maturing financial obligations hence they face high liquidity risk. These companies frequently use ladder liability maturities technique to manage liquidity risk while they rarely use cash flow match, diversified assets and diversified liabilities techniques to manage liquidity risk. The study concluded that the financial risk management policies, monitoring and evaluation practices, commodity pricing and internal control systems of the listed manufacturing and allied companies have an influence on the use of hedging techniques and liquidity management techniques in managing financial risk. The main recommendation from the study is that manufacturing and allied companies listed on the Nairobi Securities Exchange should maximize the use of hedging techniques and liquidity management techniques available to them to manage financial risk. They should review their financial risk management policies, monitoring and evaluation practice to archive maximum utilization of forwards, futures, swaps, options and the liquidity management techniques in managing financial risk. en_US
dc.publisher United States International University - Africa en_US
dc.title Financial Risk Management Practice in Manufacturing and Allied Companies Listed On the Nairobi Securities Exchange en_US
dc.type Thesis en_US


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