Effect of Foreign Exchange Transaction Risk Management on Financial Performance of Firms in Horticulture Industry in Kenya

Abstract

In Kenya, the horticulture industry is a big revenue earner with the sector earning the country foreign exchange by exporting their products to various countries overseas. However, in the preceding five years to the study, horticultural firms had steadily declined hindering their sustainability and contribution to the economy. The purpose of the study was to determine the effect of foreign exchange transaction risk management on financial performance of firms in horticulture industry in Kenya. To accomplish the objectives, the study employed an explanatory research design to analyse several horticultural enterprises at a certain point in time. Primary data were obtained through a questionnaire that included questions that were both closed and open-ended, while secondary data were acquired using schedule tables. The population of interest for this study was 63 horticultural enterprises in Nakuru County. Due to the study population's small size, a census of all 63 enterprises was done. After collecting data, Statistical package for social sciences (SPSS) version 21 was used to derive descriptive statistics and conduct multiple linear regression analysis. The averages and standard deviation were determined using descriptive statistics, and multiple linear regression analysis was applied to test the study's hypotheses. After that, the output was summarized in reports and frequency tables. The findings revealed transaction risk management having a significance value of 0.000 and a coefficient of 0.533. The significance value of 0.000 was less than the standard 0.05 which implied that foreign exchange transaction risk management had a noteworthy influence on ROCE value at 95 percent confidence level. The study concludes that foreign exchange transaction risk management has an influence on profitability of horticulture firms in Kenya. The study thus recommends that the senior management in the horticultural businesses should enter into a variety of forward contracts and options to enable them to manage this risk effectively and have the expected positive effect on their ROCE. Keywords: Foreign Exchange, Transaction Risk Management, Horticulture Industry, Financial Performance.