diversification and financial performance. The portfolio diversification explained 68% of thechanges in the financial performance of commercial banks in Kenya and that most banksdiversify their investments which has enabled them to increase profits and performance in thepast years. The study recommended that financial institutions should invest in a combination ofassets which are negatively correlated because this maximizes revenue (returns) and minimizeslosses (risks). The study recommended that a further study should be undertaken to establish thebest combination of assets that can yield an efficient portfolio. According to Roger (2010) in his study “The Importance of Asset Allocation”, he states thatAsset 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 totalperformance of each channel of investment. A study conducted by Richard, Jonathan, and Sharon(2014), examined how Business Climate influences International Franchise Expansion. Adoptinga panel regression model they conducted a study on firms undertaking international franchisebusiness using different specifications. Their study concluded that, a country’s business climateis 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 capitalmanagement. Credit sales are a norm in most industries and imperative for survival in theindustry. Van Horne and Dhamija (2016) are of the view that credit sales are a tool for bothcustomer acquisition and retention. According to Bhattacharya (2014) the decision to grant tradecredit may be a part of marketing strategy or finance strategy. Accounts receivables are one ofthe most important parts of working capital. Receivables often represent large investment in asset13
and involve significant volume of transactions and decisions. However, there are considerabledifferences 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 andZingales (1995) find that 18% of the total assets of US firms consists of receivables. In differenttheories, the existence of receivables is explained by commercial reasons, transaction-costmotivations, and financial incentives (Bastos & Pindado, 2007; Deloof& J egers, 1999; Marotta,2005; Petersen &Rajan, l997). Accounts receivable management is a crucial filed of corporatefinance because of its effects on a firm’s profitability and risk, and consequently on the firm’svalue. Yet, the main body of the literature of accounts receivables focuses on studying therelation with firm’s profitability at the developed capital markets and during the non- crisisperiod.