Effect Of Foreign Exchange Risk Management on Financial Performance of Flower Firms in Meru County, Kenya.

Abstract

Kenya's flower industry is a vital sector that contributes significantly to the nation's income generation through exports, but it has faced a gradual decline over the past five years, affecting its performance.Earlier research on the relationship between foreign exchange risk management and company performance has highlighted various gaps that require further exploration. As a result, the main objective of this research is to assess how foreign exchange risk management affects the financial performance of flower businesses in Meru County, Kenya.The study is anchored in the Theory of Rational Expectations, the International Fisher Effect Theory, and frameworks from New Institutional Economics. The investigation sought to achieve its aims by utilizing an explanatory research approach, focusing on the leading flower enterprises in Timau, Meru County for a duration of three years (2020 – 2022). Surveys with both open-ended and closed-ended questions were used to collect primary data, while structured tables were used to collect secondary data.The study targeted 158 managers from five well-known firms: P.J Dave Rising Sun Timau Farm, Batian Flowers, Upendo Flowers, Tambuzi, and Uhuru Flowers. This management group consisted of accountants, export managers, and operational managers, all of whom play a crucial role in the creation, selling, and exporting of their flower products. Given the relatively compact size of the study group, a complete census of all 158 participants was conducted. Upon data collection, SPSS software version 27 facilitated the extraction of descriptive statistics and the execution of multiple linear regression analyses to assess the research hypotheses. The hypotheses were tested using multiple linear regression analysis, and mean values and standard deviations were computed using descriptive statistics. The results were then organized into summaries, detailed reports, and frequency distribution tables. The analysis of multiple regression indicated that the R^2 value stood at 0.727, suggesting that the variables related to managing risks from foreign exchange accounted for 72.7% of the changes in the financial outcomes of the floriculture businesses in Timau Meru county. The research further indicated that effective handling of transaction risk, economic risk, and Net Exposure Management associated with foreign currency significantly impacted the financial results of these businesses in Timau Meru county, evidenced by significant values less than 0.05 and coefficients of 0.44, 0.201, and 0.330, respectively. On the other hand, the management of translation risk from foreign exchange showcased a positive, yet not significant, association with financial performance, demonstrated by a p-value of 0.314 and a coefficient of 0.085. The results indicate that the financial performance of floriculture businesses in Timau Meru county is positively impacted by the management of foreign currency risk. Consequently, it is recommended for these businesses to employ a diversified approach towards hedging against foreign currency risks, rather than relying on a singular technique.