EFFECT OF FUNDING STRUCTURE AND LIQUIDITY ON THE FINANCIAL PERFORMANCE OF THE SUGAR INDUSTRY IN KENYA
Abstract
The main objective of this study was to establish the effect of liquidity on the financial performance of the sugar industry in Kenya. The correlation between financial performance and liquidity in the Kenyan sugar industry is significant, ensuring the sector can meet immediate obligations and maintain smooth operations. Low liquidity can disrupt profitability and long-term stability, while high liquidity improves operational efficiency. Applying Stockholder and Liquidity Preference Theories to guide the study while employing correlational research design on a target population of 16 sugar companies operational in Kenya, sampled for 9 sugar companies, a total of 324 secondary data points from 2014 to 2022 were collected. Data was collected on the cost of the current ratio, acid test ratio, and economic value added, all derived from financial statements and cash flows. The results revealed a significant and positive relationship between liquidity and Economic value added (coefficient 0.939539, p=0.000<0.05); implying that liquidity has a significant relationship with economic value added. The findings are relevant for investors, policymakers, and factory managers. The study recommends that factory managers and policymakers ensure healthy liquidity within the sugar industries.
JEL: M41, G30, G32
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DOI: http://dx.doi.org/10.46827/ejefr.v8i5.1837
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