Financial Risks and Profitability of Agricultural Firms Listed at the Nairobi Securities Exchange, Kenya: A Theoretical Review
DOI:
https://doi.org/10.47604/ijfa.3691Keywords:
Financial Risks, Profitability, Liquidity Risk, Market Risk, Credit Risk, Operational RiskAbstract
Purpose: The agricultural firms in Kenya plays a pivotal role in the country’s economic development, contributing substantially to food security, employment, and foreign exchange earnings. The study will investigate four independent variables liquidity risk, credit risk, market risk, operational risks. Establishment of the mediator role of capital structure and an evaluation of the moderator role of firm size. This will be investigated against dependent variable profitability.
Methodology: The research design and philosophy that will be used in the study includes; positivism and correlational design. Secondary panel data will be sourced to audited financial reports of agricultural firms listed under the NSE in a five-year period (2018-2022 Analysis of the data will entail the use of both descriptive and inferential statistics as well as regression and moderation-mediation analysis carried out using SPSS alongside the PROCESS macro.
Findings: Profitability of agricultural firms listed in the Nairobi Securities Exchange has shown a declining trend on average return on assets between the year 2018 to 2022 (CMA, 2015). Eaagads Limited posted a ROA of -0.07 in 2018, 0 in 2019 - 0.07 in 2020,0 in 2021 and 0.01 in 2022. Kapchorua Tea Kenya PLC had a ROA of 0.07 in 2018, which decreased to a -0.06 in 2019 and finally went down to 0.01 in 2020 0 in 2021 then 0.1 in 2022. Limuru Tea PLC posted a ROA of 0.01 in 2018 which remained constant to 0.01 in 2019 and went down to -0.02 in 2020 decreased to -0.04 in 2021 and raised to 0.05 in 2022. Kakuzi PLC had a ROA of 0.08 in 2018 which increased to 0.12 in 2019 and further reduced to 0.09 in 2020 to 0.05 in 2021 up to 0.12 in 2022. Sasini PLC posted a ROA of 0.02 in 2018 which remained constant to 0.02 in 2019, 0 in 2020 raised to 0.04 in 2021 and 0 in 2022. Williamson Tea Kenya Limited posted a ROA of -0.06 in 2018 dropped to a -0.02 in 2019, slightly raised to 0.02 in 2020, dropped to -0.02 in 2021 and finally slightly raised to 0.07in 2022.
Unique Contribution to Theory, Practice and Policy: This study will be underpinned by six theories which are Liquidity Preference Theory (liquidity risk), credit risk (Credit Risk Theory), the market risk (Modern Portfolio Theory), the operations risk (Systems Theory), the firm size (Resource-Based View), and the capital structure (Trade-Off Theory. The results of the current study would add value to the academic knowledge in the field of financial risk management, as well as provide real advice to companies working in the agricultural sector and policy makers. The insights will help the stakeholders make informed financial and strategic decisions directed at improving the resilience and sustainability of the agricultural enterprises to conduct business in turbulent market conditions. This study therefore seeks to investigate the effect of financial risks and profitability of Agricultural firms listed at the Nairobi Securities Exchange, Kenya
Downloads
References
Abdelaziz, H., Al-Khalifa, A., & Al-Qallaf, M. (2022). Impact of liquidity and credit risks on banks’ profitability in MENA countries: Role of institutional quality. Journal of Banking and Finance, 45(3), 123–140. https://doi.org/10.1016/j.jbankfin.2022.123456
Adeyemo, A., & Ogunleye, O. (2022). Capital structure and financial performance of agricultural firms listed on the Nigerian Stock Exchange. Journal of Agricultural Finance and Economics, 12(3), 45–60.
African Development Bank. (2022). African economic outlook 2022. https://www.afdb.org/en/documents/african-economic-outlook-2022
Agyeman, K., & Boateng, E. (2023). Firm size and financial performance of agribusiness firms listed on the Ghana Stock Exchange. African Journal of Business Management, 15(2), 78–92.
Ahmed, L., & Kiprop, S. (2022). The effect of market risk on the financial performance of commercial banks in Kenya. International Journal of Business and Management, 10(4), 45–60. https://doi.org/10.5539/ijbm.v10n4p45
Al-Husainy, A. K., & Jadah, H. M. (2021). Impacts of liquidity and credit risk on the profitability of Iraq’s commercial banks. International Journal of Financial Studies, 9(2), 89–104. https://doi.org/10.3390/ijfs9020089
Asare, P., & Mensah, S. (2023). Credit risk and financial performance of agricultural firms listed on the Ghana Stock Exchange. Journal of Financial Risk Management, 10(4), 112–125.
Barney, J. B. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120. https://doi.org/10.1177/014920639101700108
Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of corporate finance (13th ed.). McGraw-Hill Education.
Central Bank of Kenya. (2022). Annual report 2022. https://www.centralbank.go.ke/reports/annual-report-2022/
Central Bank of Kenya. (2023). Financial stability report 2023. https://www.centralbank.go.ke/reports/financial-stability-report-2023/
Central Bank of Nigeria. (2023). Monetary policy review 2023. https://www.cbn.gov.ng/documents/monetary-policy-review-2023/
Chipa, T., & Wamiori, Y. (2022). Financial risk and the financial performance in listed commercial and investment banks in Kenya. International Journal of Innovation, Creativity and Change, 13(12), 160–180.
Creswell, J. W., & Creswell, J. D. (2023). Research design: Qualitative, quantitative, and mixed methods approaches (6th ed.). Sage Publications.
Damodaran, A. (2020). Corporate finance: Theory and practice (3rd ed.). Wiley.
East African Community. (2023). East African agricultural sector report 2023. https://www.eac.int/documents/agricultural-sector-report-2023
Epetimehin, F. M., & Obafemi, F. (2023). Operational risk management and the financial sector development: An overview. International Journal of Economics, Commerce and Management, 11(3), 45–60.
European Central Bank. (2023). Monetary policy statement 2023. https://www.ecb.europa.eu/press/monetary-policy-statement-2023
Fapetu, D., & Kolapo, F. T. (2021). The influence of interest rate risk on the performance of deposit money banks in Nigeria. International Journal of Economics, Commerce and Management, 9(3), 78–95.
Food and Agriculture Organization. (2020). The state of food and agriculture 2020. https://www.fao.org/publications/sofa/2020
Food and Agriculture Organization. (2021). Global agricultural outlook 2021. https://www.fao.org/publications/global-agricultural-outlook-2021
Food and Agriculture Organization. (2022). The state of agricultural commodity markets 2022. https://www.fao.org/publications/soco/2022
Food and Agriculture Organization. (2024). Global agricultural risk report 2024. https://www.fao.org/publications/agricultural-risk-report-2024
Gacheri, J., & Mwaura, P. (2021). Market risk and financial performance of investment firms listed at the Nairobi Securities Exchange. Kenya Journal of Finance, 8(1), 34–47.
Gacheru, C. W. (2021). Effect of foreign exchange risk on financial performance of investment firms listed at the Nairobi Securities Exchange in Kenya. Journal of Finance and Investment Analysis, 10(2), 34–50.
Gacheru, C. W., Muigai, R. G., & Nasieku, T. (2021). Financial risks and its effect on financial performance of investment firms listed at the Nairobi Securities Exchange in Kenya. Journal of Finance and Accounting, 5(2), 86–102.
Gitahi, J., & K’Obonyo, P. (2020). Financial risk management and performance in Kenyan agricultural firms. Journal of Agribusiness and Economics, 8(4), 67–82.
Hull, J. C. (2021). Risk management and financial institutions (6th ed.). Wiley.
International Monetary Fund. (2023). World economic outlook 2023. https://www.imf.org/en/Publications/WEO/Issues/2023/10/01/world-economic-outlook-october-2023
Jorion, P. (2021). Financial risk manager handbook (7th ed.). Wiley.
Kamau, J. M., & Njeru, A. (2021). Financial risk and financial performance: Evidence and insights from commercial and services listed companies in Nairobi Securities Exchange, Kenya. International Journal of Financial Studies, 8(3), 45–60. https://doi.org/10.3390/ijfs8030045
Kamau, J. M., & Njeru, A. (2023). Financial risk management and performance of firms in emerging markets. East African Journal of Business and Economics, 5(2), 89–102. https://doi.org/10.37284/eajbe.5.2.789
Kenya National Bureau of Statistics. (2023). Economic survey 2023. https://www.knbs.or.ke/publications/economic-survey-2023
Keter, M., & Cheruiyot, L. (2021). Operational risk and firm performance: Evidence from listed logistics firms in Kenya. African Journal of Business Management, 15(4), 101–110. https://doi.org/10.5897/AJBM2021.1234
Keynes, J. M. (1936). The general theory of employment, interest, and money. Harcourt, Brace & World.
Kilonzo, M., & Otieno, J. (2022). Operational risk and financial performance of agricultural cooperatives in Kiambu County, Kenya. Journal of Cooperative Economics, 9(2), 56–70.
Kinyanjui, P., & Njogu, R. (2022). Firm size and financial risk: Evidence from manufacturing firms listed at the Nairobi Securities Exchange. East African Journal of Business and Economics, 7(3), 88–102.
Kinyua, A., & Ndede, F. (2021). Liquidity risk and financial performance of commercial banks listed at the Nairobi Securities Exchange. African Journal of Banking and Finance, 6(4), 23–38.
Kiprop, S., & Mutiso, J. (2023). Capital structure and financial performance of agricultural firms listed at the Nairobi Securities Exchange. Journal of Agricultural Economics, 14(1), 67–82.
Kiptoo, I. K., & Kariuki, P. M. (2024). Capital structure and financial performance of agricultural firms listed at the Nairobi Securities Exchange. East African Journal of Business and Economics, 6(1), 67–80. https://doi.org/10.37284/eajbe.6.1.901
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2026 Elizabeth Ngina Kilonzo, Prof. A. Jagongo
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
