Working capital management remains an integral role of the financial manager that ought to be prioritized as it entails the daily working operations of an organization which eventually influence corporate performance. Manufacturing remains the cornerstone of the industrial sector in Kenya accounting for 14% of the country’s GDP slightly below that of the Global sector contribution to Global GDP at 16%. However the performance growth of the sector has been erratic given the working capital challenges that continue to embroil the sector. The aim of this study was to ascertain the effect of working capital management on the financial performance of listed manufacturing firms in Kenya. Specifically, the study examined the effect of Inventory, accounts receivables, accounts payables and cash management on the financial performance of listed manufacturing firms in Kenya. The population for the study was the listed manufacturing firms in the Nairobi securities exchange. All the ten listed manufacturing firms were selected for study. Quantitative research design was adopted and secondary data collected from the financial reports of the firms for a period of ten years (2007-2016). Data was analyzed using a panel model. ROE and Tobin’s Q were used as proxies of financial performance. STATA version 13 was used in the analysis. ICP, ACP, APP and CCC were used as proxies of Inventory, accounts receivables, accounts payables and cash management. The findings indicated an insignificant negative relationship between ICP (Inventory management), ACP (Accounts receivables management) and financial performance (ROE & Tobin’s Q) while an insignificant positive relationship was established between Cash management (CCC) and accounts payables management APP) and financial performance. The analysis of variance (ANOVA) indicated that all the components of working capital management combined have an insignificant effect on the financial performance of the listed manufacturing firms in Kenya. The listed manufacturing firms should work towards maintaining optimum inventory levels to reduce ordering and stockholding costs. Striking a balance between a lenient and strict credit policy is also valuable to reduce incidences of bad debts. The payments to suppliers shouldn’t be delayed more to utilize the cash to finance other operational expenses as this could compromise firm’s relations with suppliers.
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