Credit Risk and Financial Distress of Firms listed at the Nairobi Securities Exchange , K enya

Abstract

In Kenya, at least 6 listed firms became insolvent and got into liquidation over a period of 10 years (2009 2018) leading to loss of income, unemployment and other negative outcomes. Hence, the financial stability of the existing listed firms should be exa mined closely since the firms are expected to be stable at any point in time. Credit risk has been linked to financial distress of firms though there is little empirical evidence in developing economies particularly for firms that are listed at the Nairobi Securities Exchange in Kenya. Hence, an empirical issue that remains is to determine what effect Credit risk on financial distress of the listed firms. The general objective was to investigate the effect of Credit Risk of firms listed at the Nairobi Secur ities Exchange, Kenya for the period 2009 2018. This study was based on Wreckers theory of financial distress and the Altman’s Z Score Model for financial distress. The study adopted positivism research philosophy and explanatory non experimental and descr iptive research designs. The targeted population entailed all 66 firms listed at the Nairobi Securities Exchange, Kenya as at 2018 . Time Series Cross Sectional (Panel) secondary data was analysed . Data analysis was done using descriptive statistics and inf erential statistics using Binary Logistic regression model where SPSS version 22 was applied. The findings indicated that: Credit risk was not statistically significant at 5% significance levels p value=0.120 )). Listed firms in Kenya should be keen to mana ge their Credit risk exposures in order to avoid cases of financial distress, since they have a positive relationship. The study recommends that required credit risk levels should also be set up for firms by the C apital M arkets A uthority , regulators and th rough
policy with an aim of having a yardstick for measurement mechanisms for firms’ efficiencies.

Keywords:Risk, Credit Risk, Financial Distress, Insolvency, Bankruptcy , Kenya