Working Capital Management, Asset Base, Board Diversity and Financial Performance of Coffee Wet Mills in Embu County, Kenya

Agro-processing plays a pivotal role in enhancing economic growth and socio-welfare at large. However, over the last two decades, the financial performance of small-scale agroprocessing firms, including coffee, has declined. Small-scale coffee processors have put in place robust initiatives in a bid to improve their performance financially. Despite the initiatives, the coffee sector has continued to underperform. Farmers have been disgruntled by poor returns making the sector an unattractive business venture. Thus, the aim of the study was to determine the effects of working capital management, board diversity, and asset base on the financial performance of small-scale coffee wet mills. The study was informed by Keynesian liquidity preference, transaction cost, resource dependence, agency, upper echelons, social categorization, and the return to scale theories. The study used financial data from 2014 to 2018 among the small-scale coffee processors. The study employed multivariate regression modelling to determine working capital management effect on financial performance of the processors. Two-stage Least Squares (2SLS) regression analysis was utilized in determining the influence of board diversity on financial performance. Finally, Ordinary Least Squares (OLS) regression analysis was used to assess the effect of asset base on the financial performance of the small-scale coffee wet mills. A significant relationship was revealed between working capital management and return on assets and return to farmers of the small-scale coffee wet mills. Subsequently, the wet mill processors could lower their payables period and current ratio by 0.01% and 34%, respectively, to improve return on assets; and increase the same metrics by 0.03% and 76% to improve return to farmers. The results further revealed that the financial performance of the small-scale coffee wet mills was significantly influenced by board diversity. The wet mills could increase the proportion of female board members and independent board members both by 10% to increase return on assets by over 30%. In addition, a huge asset base in terms of the value of coffee bushes owned by the wet mill was found to be a positive determinant of return on assets. Thus, increasing the value of coffee bushes by the wet mills could increase their return on assets. The study findings will aid the government to focus on initiatives that will increase the quantity of coffee grown by the wet mills for sustainable processing. The decision-makers should increase current ratio and lengthen payables period to enhance small-scale coffee wet mills’ financial performance. The smallscale

coffee wet mill management should increase the proportion of women and independent members to the board for improved performance.