Open AccessEffects of Hedging Foreign Exchange Risk on Financial Performance of Non-Banking Companies Listed at the Nairobi Securities Exchange
Author(s) -
Onesmus Mutunga Nzioka,
Faith M. Maseki
Publication year - 2017
Publication title -
european scientific journal
Language(s) - English
Resource type - Journals
eISSN - 1857-7881
pISSN - 1857-7431
DOI - 10.19044/esj.2017.v13n10p402
Subject(s) - profitability index , business , cash flow , foreign exchange , inflation (cosmology) , revenue , descriptive statistics , exchange rate , population , actuarial science , accounting , monetary economics , finance , economics , statistics , mathematics , medicine , physics , theoretical physics , environmental health
The general objective of this study was to establish the effects ofhedging foreign exchange risk on financial performance of non-bankingcompanies listed at the Nairobi securities exchange. A descriptive researchdesign was adopted on the target population of 49 non-banking firms listed atthe NSE. Primary data collected using a questionnaire was used containingboth open and close ended questions. Data was analyzed using SPSS togenerate descriptive statistics such as percentages, frequency distribution,measures of central tendencies (mean) and the data was presented in tables.The study conducted multiple regression analysis to establish the extent towhich the hedging techniques affected firm’s performance. The resultsshowed that, taking all factors into account (internal hedging techniques,external hedging technique, inflation and interest rates) performance of nonfinancialfirms would be 0.564. The findings presented further indicated thatinternal hedging had the greatest effect on the firm performance (β = 0.551),Inflation (β = 0.322), External hedging (β = 0.133 while interest rate (β =0.024) had the least effect to the firms performance. However, all thevariables were significant (p<0.05). Hedging techniques affected firm’sperformance i.e. profitability, sales revenue and the cash flow and liquidityposition of the firm. The internal techniques were more effective on theperformance than the external techniques. The four independent variablesstudied accounted for 75.5% of the variations in non-banking firms’performance as represented by the adjusted R2. This therefore means the fourvariables contribute to 75.5% of performance, while other factors not studiedin this research contributes 24.5%. The study recommends that, firmsdevelop a robust foreign exchange risk management framework whichclearly shows its currency risk assessment procedure and implementation of currency risk management strategies. It also recommends that the variousaspects of firm’s financial performance be taken into consideration beforeadopting a particular technique to hedge to protect cash flow, liquidity,profitability and sales revenue.