Moderating Effect of Gearing Ratio on the Relationship between Loyalty Programs and Financial Performance of Selected Firms in Service Industry in Kenya

Abstract

Thepurposeofthestudywastodeterminethemoderatingeffectofgearingratioontherelationshipbetween loyalty programs and financial performance of selected firms in service industry inKenya.Thestudyemployedexplanatoryresearchdesignwhichisnon-experimentalinnature.Thetarget population was three (3) telecommunication firms (Safaricom, Airtel and Telkom Kenya),49 supermarkets and 46 Five Star hotels. Since the population of telecommunication firms wassmall, the study used the census survey method. Purposive sampling was used to select 5 bigSupermarketsand16FiveStarhotels.Paneldataanalysiswasusedtolinktherelationshipbetweenthe variables. Similarly, One-Way ANOVA was used to find out if the financial performance ofthe threeserviceindustriesweredifferent.Diagnostictests which includednormality tests,multicollinearity tests, panel unit root tests and fixed and random effect were carried out. Theresultsfurthershowedthatgearingratiohaveanegativeandsignificantrelationshipwithfinancialperformance of service industry. The regression results revealed that gearing ratio improved thestrength of the relationship between loyalty program and Financial Performance of the SelectedFirms in Service Industry in Kenya. Since long term debt provides tax shield for the company,there is every tendency for the company to continue to grow debts, the effect of accumulatingunnecessarydebtsshould formregularpolicydiscussbythemanagement andthedirectors,hencethere should be high-powered committees of the managements and the board to review the debtportfoliofromtimetotime.Thesecommitteesshouldbefirmoninvestment/divestmentofany debtcapitaltoensurethatthecompanystaysafloatall thetimewithoutthefearof anylitigationfornotmeetingupwithallpresentandpreviousobligations