Moderating Effect of Corporate Governance on the Relationship Between Inventory Conversion Period and Financial Performance of Non-Financial Firms Listed at the Nairobi Securities Exchange

Abstract

This study examined the moderating effect of corporate governance on the relationship between inventory conversion period and financial performance of non-financial firms listed on the Nairobi Securities Exchange (NSE). The study adopted an explanatory research design and positivist research philosophy, using a longitudinal research strategy and secondary panel data covering ten years, from 2016 to 2025. A census of 32 eligible non-financial firms generated 320 firm-year observations. Financial performance was measured using Return on Assets (ROA); the inventory conversion period was measured as inventory divided by cost of sales multiplied by 365 days; and corporate governance was measured using a composite governance index. Firm size, measured as the natural logarithm of total assets, was used as a control variable. Data were analysed using descriptive statistics, Pearson correlation, and hierarchical panel regression analysis. The inventory conversion period averaged 77.442 days (SD = 15.035) and had a negative and statistically significant association with financial performance (r = -.4670, p = .05). It also had a negative and statistically significant direct effect on financial performance (β = -0.0088, p = .000). Corporate governance had a positive and statistically significant direct effect on financial performance (β = 0.3767, p = .000). The interaction between corporate governance and inventory conversion period was positive and statistically significant (β = 0.0157271, p < .05), indicating that corporate governance weakens the negative effect of prolonged inventory conversion periods. The study concludes that stronger corporate governance enhances oversight, accountability, and inventory management, thereby mitigating adverse financial effects.