IDEAS home Printed from https://ideas.repec.org/a/bcp/journl/v9y2025issue-7p199-214.html

Working Capital Management, Free Cash Flows and Financial Performance: Evidence from Commercial State Corporations in Kenya

Author

Listed:
  • Walter Onkundi Chanua

    (Department of Finance and Accounting, Faculty of Business and Management Science, University of Nairobi, Kenya)

  • Dr. Kennedy Okiro

    (Department of Finance and Accounting, Faculty of Business and Management Science, University of Nairobi, Kenya)

  • Dr. Fredrick Ogilo

    (Department of Finance and Accounting, Faculty of Business and Management Science, University of Nairobi, Kenya)

Abstract

This study aimed to investigate the mediating role of free cash flows in the relationship between working capital management and financial performance among commercial state corporations in Kenya. The research sought to determine how free cash flows influence the effectiveness of WCM in driving the financial performance of these corporations. Free cash flow theory was used to guide the study, emphasizing how efficient management of working capital leads to surplus cash flows that enhance financial performance and shareholder value. The study employed a positivist philosophy, using secondary data sourced from the annual reports of the 28 commercial state corporations in Kenya over the period 2014 to 2023. Regression analysis was utilized to assess the mediating effect of free cash flows. The results indicated that free cash flows significantly mediated the relationship between working capital management and financial performance, with corporations that managed their working capital more effectively demonstrating better operational efficiency and higher profitability. These findings suggest that improving working capital management not only directly enhances financial performance but also does so by increasing the availability of free cash flows for reinvestment and strategic allocation.

Suggested Citation

  • Walter Onkundi Chanua & Dr. Kennedy Okiro & Dr. Fredrick Ogilo, 2025. "Working Capital Management, Free Cash Flows and Financial Performance: Evidence from Commercial State Corporations in Kenya," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(7), pages 199-214, July.
    • Handle: RePEc:bcp:journl:v:9:y:2025:issue-7:p:199-214
    as

    Download full text from publisher

    File URL: https://www.rsisinternational.org/journals/ijriss/Digital-Library/volume-9-issue-7/199-214.pdf
    Download Restriction: no
    File URL: https://rsisinternational.org/journals/ijriss/articles/working-capital-management-free-cash-flows-and-financial-performance-evidence-from-commercial-state-corporations-in-kenya/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. James Agyei & Shaorong Sun & Eugene Abrokwah, 2020. "Trade-Off Theory Versus Pecking Order Theory: Ghanaian Evidence," SAGE Open, , vol. 10(3), pages 21582440209, July.
    2. Claudine Gartenberg & Andrea Prat & George Serafeim, 2019. "Corporate Purpose and Financial Performance," Organization Science, INFORMS, vol. 30(1), pages 1-18, February.
    3. Abednego Osei & Andrew Osei Agyemang & Joseph Owusu Amoah & Inusah Sulemana, 2023. "Empirical study on the impact of working capital management on going concern of manufacturing firms in Ghana," Cogent Business & Management, Taylor & Francis Journals, vol. 10(2), pages 2218177-221, December.
    4. Nohade Nasrallah & R. El Khoury, 2022. "Is corporate governance a good predictor of SMEs financial performance? Evidence from developing countries (the case of Lebanon)," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 12(1), pages 13-43, January.
    5. Jensen, Michael C. & Meckling, William H., 2008. "Theory of the firm: managerial behavior, agency costs and ownership structure," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 48(2), April.
    6. Parvaneh Saeidi & Sayyedeh Parisa Saeidi & Leonardo Gutierrez & Dalia Streimikiene & Melfi Alrasheedi & Sayedeh Parastoo Saeidi & Abbas Mardani, 2021. "The influence of enterprise risk management on firm performance with the moderating effect of intellectual capital dimensions," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 34(1), pages 122-151, January.
    7. Faisal Mahmood & Umeair Shahzad & Ali Nazakat & Zahoor Ahmed & Husam Rjoub & Wing-Keung Wong, 2022. "The Nexus Between Cash Conversion Cycle, Working Capital Finance, And Firm Performance: Evidence From Novel Machine Learning Approaches," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 17(02), pages 1-44, June.
    8. Ferichina Gathoni Waweru & Gerald Atheru, 2022. "Working Capital Management and Financial Performance of Selected Supermarkets in Nairobi County, Kenya," Post-Print hal-05148330, HAL.
    9. Garikai Mandipa & Athenia Bongani Sibindi, 2022. "Financial Performance and Working Capital Management Practices in the Retail Sector: Empirical Evidence from South Africa," Risks, MDPI, vol. 10(3), pages 1-17, March.
    10. Yashar H Barardehi & Dan Bernhardt & Ryan J Davies, 2019. "Trade-Time Measures of Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 32(1), pages 126-179.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dinah Natto & Thabang Mokoaleli-Mokoteli, 2025. "Short- and long-term impact of governance on firm performance in emerging and developed economies: a comparative analysis," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 22(3), pages 831-848, September.
    2. Ömer Tuğsal Doruk & Bi Irie Claude Martial Gohore, 2024. "A Financing Constraints Paradox? Internal Finance and Capital Structure Link for Tourism Firms: Asian Emerging Market evidence," SAGE Open, , vol. 14(4), pages 21582440241, November.
    3. Obey Dzomonda, 2022. "Environmental Sustainability Commitment and Access to Finance by Small and Medium Enterprises: The Role of Financial Performance and Corporate Governance," Sustainability, MDPI, vol. 14(14), pages 1-20, July.
    4. Ronald Ebenezer Essel, 2025. "Financial Management Practices and Financial Performance in China’s Main Capital Markets: A Macroeconomics Moderation Analysis," China Report, , vol. 61(4), pages 509-551, November.
    5. Anjan V. Thakor, 2023. "Finance research: What are the new frontiers?," The Financial Review, Eastern Finance Association, vol. 58(3), pages 453-462, August.
    6. Ayman Hassan Bazhair, 2023. "Board Governance Mechanisms and Capital Structure of Saudi Non-Financial Listed Firms: A Dynamic Panel Analysis," SAGE Open, , vol. 13(2), pages 21582440231, May.
    7. Emiliano Di Carlo & Silvia Cervi, 2025. "Redefining Firms in a Crisis Era: A Conceptual Framework for a Humanistic Approach Post-COVID-19," Humanistic Management Journal, Springer, vol. 10(2), pages 273-297, August.
    8. Mohammed T. Abusharbeh, 2024. "Technology-Profitability Paradox in Banking Sector: Evidence from Palestine," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 14855-14873, September.
    9. Barbara Su, 2023. "Banking practices and borrowing firms’ financial reporting quality: evidence from bank cross-selling," Review of Accounting Studies, Springer, vol. 28(1), pages 201-236, March.
    10. Hamzeh Al Amosh & Saleh F. A. Khatib, 2025. "Cybersecurity Transparency and Firm Success: Insights From the Australian Landscape," Australian Economic Papers, Wiley Blackwell, vol. 64(2), pages 189-204, June.
    11. Yeon‐Koo Che & Kathryn E. Spier, 2008. "Strategic judgment proofing," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 926-948, December.
    12. Ichev, Riste & Valentinčič, Aljoša, 2025. "The effect of impact investing on performance of private firms," Research in International Business and Finance, Elsevier, vol. 73(PA).
    13. Alfred C. Korir & Prof. Thomas Cheruiyot, PhD & Prof. Philip Bii, 2025. "The Effect of Board Tenure and CEO Duality on Firm Performance of Companies Listed in Nairobi’s Stock Exchange," European Journal of Business and Strategic Management, International Peer Review Journals and Books, vol. 10(5), pages 31-43.
    14. Hartarska, Valentina M. & Nadolnyak, Denis A., "undated". "Financing Constraints and Access to Credit in Post Crisis Environment: Evidence from New Farmers in Alabama," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124882, Agricultural and Applied Economics Association.
    15. Erik Kartiko & Verawati Suryaputra & Dida Farida Latipatul Hamdah & Mira Susanti Amirrudin, 2025. "Determinants of Financial Reporting Quality in the Banking Sector," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(8), pages 4217-4235, August.
    16. Fabbri, Daniela & Menichini, Anna Maria C., 2016. "The commitment problem of secured lending," Journal of Financial Economics, Elsevier, vol. 120(3), pages 561-584.
    17. Sang Cheol Lee & Mooweon Rhee & Jongchul Yoon, 2018. "Foreign Monitoring and Audit Quality: Evidence from Korea," Sustainability, MDPI, vol. 10(9), pages 1-22, September.
    18. Lu, Yao & Zhan, Shuwei & Zhan, Minghua, 2024. "Has FinTech changed the sensitivity of corporate investment to interest rates?—Evidence from China," Research in International Business and Finance, Elsevier, vol. 68(C).
    19. DEGEORGE, François & DING, Yuan & JEANJEAN, Thomas & STOLOWY, Hervé, 2005. "Does Analyst Following Curb Earnings Management?," HEC Research Papers Series 810, HEC Paris.
    20. Xueyan Dong & Jingyu Gao & Sunny Li Sun & Kangtao Ye, 2021. "Doing extreme by doing good," Asia Pacific Journal of Management, Springer, vol. 38(1), pages 291-315, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bcp:journl:v:9:y:2025:issue-7:p:199-214. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Pawan Verma (email available below). General contact details of provider: https://rsisinternational.org/journals/ijriss/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.