Examining effect of Forward Integration Credit Risk Mitigation Mechanisms on Return on Equity (ROE) of Agribusiness Firms in Kenya

Abstract

Commercial Banks apply Forward Integration Credit Risk Mitigation Mechanisms (FICRMMs) to promote credit access, security and productivity for various sectors, since credits make a significant portion in business’ capital structure and performance. Credits to the agribusiness sector; which contributes 53% to employment in developing countries, and 80% in Kenya, has registered decreasing trends between 2002 and 2016; ranging from 6.5% to 2.9%. However, there is little information on the effect of Forward Integration Credit Risk Mitigation Mechanisms on agribusiness firms’ performance with respect to Equity as owner investments in Agribusiness Enterprises in Nyanza region; where agribusiness operations play core absorption over 80% of its labour-force. The purpose of this study was to analyse the effect of Forward Integration Credit Risk Mitigation Mechanisms on Return on Equity (ROE) of agribusinesses enterprises. With objectives of determining the effect of the mechanisms on ROE, the single period Regression results reveal R2 of 0. 647 to return on equity (ROE), implying that FICRMMs account for 57% of ROE at significant level p<0.05.