Capital Intensity and Financial Performance Of Manufacturing Companies Listed At Nairobi Securities Exchange.

Abstract

ixed assets form a significant portion of a company’s expenses and instrumental in shaping probable returns for organizations. Capital intensity for manufacturing companies is vital in informing cost management and investment decisions. Companies are given tax allowances on fixed assets in the form of wear and tear, investment and industrial building deduction which provide tax credits with consequential effects of increasing organizational after-tax returns. Manufacturing sector is key to economic growth and Kenya is experiencing stagnate contribution of this sector to economic growth. Little literature is available that establishes the association between capital intensity and financial performance of the manufacturing sector. Therefore, this study sought to find out the relationship between capital intensity and financial performance for manufacturing companies listed in the Nairobi Securities Exchange during the period 2010-2017. The study was anchored on tax planning theory, trade-off theory, agency cost theory and political power theory. The study adopted a positivism research philosophy and an explanatory research design. The target population of the study was all the nine listed manufacturing companies in NSE. Descriptive and inferential statistics was done using panel data and SPSS version 23 software for data analysis. The findings indicated that capital intensity has a positive insignificant association with financial performance. It concluded that capital intensity does not affect financial performance of manufacturing firms listed in Nairobi Securities Exchange. The study recommended that the companies should investment more in non- current assets so as to reap capital allowances tax benefits in order to improve their financial performance. The study will be beneficial to the management as it provides insights on how firms can increase their financial performance while leveraging on capital intensity.