Cash Management and Financial Value of Commercial Banks in Kenya

Abstract

Purpose: The concept of firm value has become a great concern to shareholders, managers, potential investors, creditors and other stakeholders globally since it measures the firm’s worth and posits a positive public image. Despite measures put in place to improve cash management, the commercial banks in Kenya general performance is on a downward trend this therefore has a negative impact of the financial value of commercial banks. The main objective of the study was to assess the effect of cash management on the financial value of commercial banks in Kenya.

Methodology: The study was guided by Cash conversion theory. The study employed correlation research design on the panel data collected over a span of 10 years. The target population was 38 commercial banks in Kenya. A secondary data collection sheet was used to document information from audited financial statements downloaded from Nairobi stock exchange and Central bank of Kenya websites. Normality was tested through Shapiro –Wilk and confirmed. Stationarity was tested using Levin-Lin-Chu test and results confirm stationarity. Multicollinearity was assessed through Variance inflation factors and found to be within the range of less than 10, thus Multicollinearity established to be absent in the independent variables. Heteroscedasticity was tested through Breach – Pagan test. The probability of Chi-square of 2 degrees of freedom is 0.21> 0.05 at 5% level of significance confirming homoscedasticity. Auto-Correlation was tested by using Durbin-Watson test.  

Findings: The results depicted a value of 1.988 which confirms no autocorrelation.   Descriptive statistics comprised of mean, standard deviation and variance. The overall descriptive statistics show high variation between the dependent and independent variables among different commercial banks. Inferential statistics comprised of Pearson’s correlation analysis and Random Effects Model. The Pearson’s correlation coefficient depicts r = 0.48 with a p-value of 0.000 for financial value and cash management. The regression coefficients were established as 0.02, p-values < 0.05 for cash management and financial value showing that cash management had a significant positive influence on financial value of commercial Banks.

Recommendation: It was recommended that commercial banks should improve on income generation and return on assets. Efficiency in using fixed assets should be a key concern to commercial banks.