ASSESSING THE EFFECT OF FINANCIAL FLEXIBILITY ON INVESTMENT RETURN OF AGRICULTURAL ENTERPRISES IN SUB-SAHARAN AFRICA

Mujieh Philomina Nkeng, Fossung Micheal Forzeh

Abstract


This study examines how financial flexibility, measured by current ratio (CR), quick ratio (QR), working capital (WC), and cash ratio (CashR), affects investment return proxied by the impact-adjusted rate of return (IARR) of agricultural enterprises in Sub-Saharan Africa (SSA). The study focuses on four key SSA countries: Cameroon, Côte d’Ivoire, Kenya, and Nigeria. Anchored on Agency theory and institutional theory, the study used an explanatory research design and applied a fixed-effect regression analysis to ten-year data (2014-2023) for 23 firms. The findings exerted heterogeneous effects of financial flexibility and investment return. In Côte d’Ivoire, the current ratio was positively significant (β = 5.083, p < 0.1), indicating that liquidity enhances enterprise returns, consistent with the view that flexible financial structures promote investment (Modigliani & Miller, 1958). By contrast, in Cameroon, higher liquidity (CR = -1.443, p < 0.1) negatively affected IARR, implying inefficiency in idle resources, a result aligning with findings by Akinboade and Kinfack (2012) that excess liquidity may constrain productivity in African enterprises. Equally, cash ratio had a relatively positive effect on returns in Kenya (β = 0.0669, p < 0.05), meaning cash availability supports continuity of operations (Nkundabanyanga et al., 2014). The study concludes that enhancing financial flexibility through targeted financial instruments can significantly improve the IARR of agricultural enterprises. Policymakers can work toward providing better access to affordable credit and invest in structural financial market reforms to increase liquidity.

JEL: M41-Financial Flexibility, G32-Working Capital, Q13-Agricultural Enterprises, G11-Investment return, O16-Sub-Saharan Africa

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Keywords


financial flexibility, impact-adjusted rate of return, agricultural enterprises, Sub-Saharan Africa

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DOI: http://dx.doi.org/10.46827/ejefr.v9i4.2048

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