Implication of Cost Structure on Financial Sustainability in Light of Corporate Governance of Listed Manufacturing Companies in Kenya (Published)
Kenya’s manufacturing sector has made strides; however, it continues to grapple with a range of financial difficulties issues to enhance the sector’s competitiveness and sustainability in the long run. Understanding optimal cost structures and their variability is vital for financial sustainability. This study explores the significance of cost structure in light of corporate governance and its impact on the financial sustainability of manufacturing companies in Kenya. The study used quantitative research design and panel data analysis to examine the relationships between cost structure and financial sustainability in light of corporate governance. The targeted population included manufacturing, construction and allied publicly listed companies at Nairobi Securities Exchange. Out of the 13 listed companies 11 where analyzed that were actively trading at the NSE for the period of the study. The results suggest that production cost and operation cost was 71.70% and 39. 38% to sales respectively which is higher than the average in Africa region. Not to mention than Africa region has the highest cost structure in the world. On average, production costs contribute more to the cost structure compared to operational costs, highlighting their importance in managing total expenses. The results on financial sustainability showed an average O-Score of 2.8025 suggests that manufacturing industry demonstrate moderate financial sustainability, but a subset of firms’ faces financial risk. The findings shows that Cost structure (both production and operation cost) is statistically significant and negatively affects financial sustainability. In addition, the results indicates that Corporate Governance does not appear to have a statistically significant relationship with financial sustainability. The results also suggests that corporate governance moderates the relationship between cost structure and the financial sustainability. Further, the finding indicates that the joint significance of the independent variables (Cost Structure and corporate governance) is not statistically significant. The high production and operational costs in Kenya pose a significant challenge to the growth and competitiveness of its manufacturing sector. However, by adopting a combination of strategic initiatives-ranging from technology adoption and local sourcing to infrastructure development and policy support-Kenyan manufacturers can reduce costs and enhance their position in both regional and global markets. Collaborative efforts between the government, private sector, and development partners will be critical in addressing systemic inefficiencies and unlocking the potential of the manufacturing sector. This will not only improve competitiveness but also drive industrialization, economic growth, and job creation in Kenya.
Keywords: Corporate Governance, Financial Sustainability, cost structure