Financing Cash Flow Management Practices, Board Capital and Investment Efficiency: Empirical Study on Non-Financial Listed Firms in Kenya

Abstract

Investment efficiency is essential for maximizing returns, optimizing resource allocation, managing risk, ensuring long-term sustainability, fostering stakeholder confidence, and enabling informed strategic decision-making. Nevertheless, investment levels in developing nations like Kenya have yet to recover to pre-crisis levels. A concerning trend in emerging economies, including Kenya, has been the persistent decline in investment efficiency over time, presenting a formidable challenge for investors and businesses alike. Thus, the study's general objective was to establish the moderating effect of board capital on the relationship between cash flow management practices and investment efficiency of non-financial firms listed in NSE. The study was guided by stakeholders’ theory, free cash flow theory and resource dependence theory. The study’s target population was all the 66 NSE-listed companies. The 11-year period of empirical analysis was from 2012 to 2023. Longitudinal and explanatory research design were adopted to establish the causal relationship between the study’s variables by use of panel data. After exclusion and inclusion criteria, the study utilized the data of 43 non-financial listed companies covering the period 2012−2023. A document report guide was used to collect the data. The Hausman test was used in deciding between fixed and random effects model and both the Breusch-Pagan tests to assess heteroskedasticity. The data for the study was analyzed through descriptive and inferential statistics using statistical techniques including Pearson correlation coefficient and multiple regression analysis. All the analyses were done with the aid of STATA software version 13. The hypotheses were tested through hierarchical multiple regression models. The findings of this study revealed that financial cashflow management practices (β= -0.051, ρ>0.05) was negative and statistically insignificant. Board capital moderates the relationship between financing cash flow management practices and investments efficiency (β= 0.006, ρ<0.05). The study suggests that managers in non-financial companies prioritize improving operational efficiencies. The findings of this study can help direct the allocation of resources and concentrate on improving operational decisions. Since board capital has a moderating influence that is beneficial, it is essential for businesses to carefully select board members who possess the proper experience and networks that can improve financial strategy. This highlights the significance of human capital in governance systems and encourages businesses to make investments in the growth of their boards of directors. The findings have the potential to provide policymakers and regulatory agencies with information highlighting the significance of strong governance structures in the process of enhancing investment efficiency.