diversification and financial performance. The portfolio diversification explained 68% of the
changes in the financial performance of commercial banks in Kenya and that most banks
diversify their investments which has enabled them to increase profits and performance in the
past years. The study recommended that financial institutions should invest in a combination of
assets which are negatively correlated because this maximizes revenue (returns) and minimizes
losses (risks). The study recommended that a further study should be undertaken to establish the
best combination of assets that can yield an efficient portfolio.
According to Roger (2010) in his study “The Importance of Asset Allocation”, he states that
Asset Allocation Policy explains the 40, 90 and 100 percentage of fund performance. As a result,
the manner on which a firm allocates funds among investment channels matters most on total
performance of each channel of investment. A study conducted by Richard, Jonathan, and Sharon
(2014), examined how Business Climate influences International Franchise Expansion. Adopting
a panel regression model they conducted a study on firms undertaking international franchise
business using different specifications. Their study concluded that, a country’s business climate
is an important predictor of foreign firm’s expansion into that country.
2.2.4 Accounts Receivable Management and Profitability
Receivables management is a significant component of any organization’s working capital
management. Credit sales are a norm in most industries and imperative for survival in the
industry. Van Horne and Dhamija (2016) are of the view that credit sales are a tool for both
customer acquisition and retention. According to Bhattacharya (2014) the decision to grant trade
credit may be a part of marketing strategy or finance strategy. Accounts receivables are one of
the most important parts of working capital. Receivables often represent large investment in asset
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and involve significant volume of transactions and decisions. However, there are considerable
differences in the level of receivables in firms around the world.
A study by Demirgüc-Kunt and Maksimovic (200l) found that in countries such as France,
Germany, and Italy accounts receivable exceeds a quarter of firms’ total assets, while Rajan and
Zingales (1995) find that 18% of the total assets of US firms consists of receivables. In different
theories, the existence of receivables is explained by commercial reasons, transaction-cost
motivations, and financial incentives (Bastos & Pindado, 2007; Deloof& J egers, 1999; Marotta,
2005; Petersen &Rajan, l997). Accounts receivable management is a crucial filed of corporate
finance because of its effects on a firm’s profitability and risk, and consequently on the firm’s
value. Yet, the main body of the literature of accounts receivables focuses on studying the
relation with firm’s profitability at the developed capital markets and during the non- crisis
period.
