Relationship between Trade Credit and Financial performance of Supermarkets in Kenya: evidence from Machakos County

Abstract

High profits are the aspirations of any firm. This has made entrepreneurs to be creative especially in retail outlets. In Kenya, there has been an increased expansion of retail chains, especially supermarkets. This expansion has an undertone of a booming business venture. The ability to stock (all) goods to the satisfaction of the customers might be a tall order. This calls for some creativity among the retailers. This gives the supplier the opportunity to meet customer needs which is a silent witness to increased financial performance. Retail supermarkets play a very key role in the distribution of household goods, especially in towns. There is need to investigate possibility of the relationship between the continued trade credit and financial performance. The general objective of this study was to establish to establish the relationship as noted above. Secondary data was used in the study. A descriptive approach was used. A regression of the variables was undertaken using Statistical Package for Social Sciences (SPSS), version 23. This elaborated on the possible relationship between the two variables. Conclusions were then made from the correlations and recommendations given for improvement. The study determined that trade credit constructs namely: trade receivables and trade payables were jointly significantly related to financial performance of the supermarkets in Machakos County. The study determined that trade payables, a trade credit construct, significantly influenced return on assets (ROA) of the supermarkets in Machakos County. According to the study, trade receivables significantly influenced ROA of the supermarkets in Machakos County. It can be concluded form the study findings that trade credit generally is a critical antecedent of ROA of supermarkets in Machakos County. The study further concludes that trade credit constructs, including the trade payables, and trade receivables were significantly related to ROA. This means that policy making institutions ought to pay keen attention to the dynamics of the variables. The study further recommends that in order to have a proper policy-practice nexus, various stakeholders in the retail industry including regulatory bodies, retail owners, and suppliers ought to develop systems and processes that would trigger retail sector development. This could be through robust collaboration between the policy makers and the practitioners. Specifically, the study recommends that the academics should develop models that can be used by management practitioners to enhance the growth of their firms.