Effect of Management of Cashflow Activities on The Financial Performance of Publicly Listed Insurance Companies in Kenya

Abstract

The purpose of this study was to assess the effect of management of cash flow activities on the financial performance of publicly listed insurance companies in Kenya. Operating cash flow management, investing cash flow management and financing cash flow management were used as independent variables and ROA, ROE and solvency margin were used as proxy for financial performance (dependent variable). The study was anchored on the Miller-Orr cash management model supported by Baumol's deterministic theory of cash management, pecking order and free cash flow theory. The study employed a descriptive research design with secondary source of data being obtained from the annual audited financial reports of six publicly listed firms for six years (2014-2019). Data was analyzed by both descriptive and inferential statistics. To assess the robustness of outcomes, the analysis performed three diagnostic tests: multicollinearity tests, Heteroskedasticity test, and Normality test. To measure the significance of the association between the variables under analysis and to determine the extent to which the predictor variables explain the dependent variable, inferential statistics such as R square, t-tests, and F-tests were used. The data was evaluated using correlation analysis and multiple linear regression analysis. The results of the study revealed a strong1positive relationship1between the1study variables with coefficient of determination (R2) of 43.3% on the components of cash flow activities and return on assets; coefficient of determination (R2) of 45.3% on the components of cash flow activities and return on equity and coefficient of determination (R2) of 52.4% on the components of cash flow activities and solvency margin. Among the study’s recommendations is that publicly listed insurance firms in Kenya need to re-invest the premium contributions in the high interest generating assets such as stocks and bonds to give shareholders maximum returns.