Influence of Financial Management Practices on Financial Performance of Commercial Banks Listed in the Nairobi Securities Exchange

Abstract

The general aim of the study was to assess the influence of financial management practices on the financial performance of the banking industry in Kenya giving attention to commercial banks listed on the Nairobi Securities Exchange. This study sought to determine the influence of financial management practices on financial performance of the commercial banks in Kenya, using the variables; working capital management, capital budgeting techniques and capital structure decisions. This study was guided by Liquidity Preference Theory, Pecking Order Theory and the Neoclassical Theory of Investment. The 11 commercial banks which are listed at the Nairobi Securities Exchange formed the target population of the study. Explanatory research design and a census method of data collection were used. Primary data was collected through questionnaires which were issued to the executive staff members of the commercial banks, and secondary data was gathered using a data collection sheet from published and audited financial statements of the banks. The questionnaires were tested for validity and reliability. Validity was tested through a pilot study which helped in analyzing face and content validity. Reliability was measured using internal consistency, using the Cronbach Alpha. Data was analyzed using the statistical package of social science program. The findings of the study established that working capital management, capital structure decisions, capital budgeting techniques had a positive and statistically significant influence on financial performance. The study recommended that more studies should be done on other financial management practices which influence the financial performance of the listed commercial banks of Kenya as well as other sectors which are listed at the Nairobi Securities Exchange