Asian Journal of Economics, Finance and Management

Firm value is a critical determinant of investor perceptions and capital allocation decisions. Despite its importance, manufacturing firms listed on the Nairobi Securities Exchange (NSE) have experienced declining market valuations, reflected in volatile share returns. This study investigates the impact of working capital management practices specifically trade receivables, trade payables, and inventory levels on firm value, addressing a gap in empirical evidence from emerging markets. Grounded in transaction theory, the cash conversion cycle, and shareholder wealth theory, the study adopted an explanatory research design. It focused on nine listed manufacturing firms, with purposive sampling yielding seven consistently listed between 2014 and 2023. Secondary panel data were analyzed using descriptive statistics, correlation, and regression analysis, supported by diagnostic tests including distribution checks, multicollinearity, serial correlation, and the Hausman specification test. Results indicate that efficient accounts receivable management, reflected in shorter collection periods, strengthens investor confidence by signaling effective credit policies. Strategic accounts payable management enhances liquidity but requires careful balancing to preserve supplier trust. Lean inventory practices emerged as a key driver of firm value, reducing holding costs and improving operational efficiency. The study contributes to literature by providing context-specific evidence from Kenya’s capital market, highlighting how working capital practices influence firm value in developing economies. It extends theory by linking working capital decisions to shareholder wealth maximization and market-based valuation outcomes. The findings suggest that firms should adopt integrated working capital frameworks that align receivable, payable, and inventory management. Practical measures include comprehensive credit risk assessment, transparent supplier partnerships, and AI-driven inventory forecasting. These strategies not only enhance operational efficiency but also strengthen investor confidence and long-term firm value.