Abstract:
Background: The purpose of the study was to assess the effect of custom duty incentives
on the financial performance of manufacturing firms in Kenya. The study focused on the
manufacturing companies registered by Kenya Association of Manufacturers. Materials
and Methods: The population of the study was the 447 manufacturing companies in the
register of Kenya Association of Manufacturers in 2019. The study applied a stratified
random sampling technique in the determination of the sample size, where 211
manufacturing companies were selected for the study. Primary data was collected by the
use of questionnaires targeting accountants and other senior management officers in
manufacturing companies. Secondary data was collected from audited financial
statements covering a period of 10 years from 2009 to 2018. The response rate on the
questionnaires was 73.5 %. Data analysis was performed by use of SPSS version 25. The
study performed both descriptive and inferential statistics, diagnostic tests involving
multi-collinearity tests, auto-correlation, heteroscedasticity and test of normality were
carried out. Results: The data did not suffer from multi-collinearity neither was there
auto-correlation; however, the data violated the assumption of normality. The study
applied ordinal regression analysis so as to determine the predictive model. Pseudo-R
square was computed which showed that custom duty incentives explain 4% of the
change in financial performance meaning there are other factors that contribute to the
change in financial performance. The results of the study also showed that custom duty
incentive has a statistically significant relationship with the financial performance of
manufacturing companies. Conclusion: The conclusion of the study was custom duty
contributes positively to the financial performance of manufacturing companies in
Kenya. The study recommended that manufacturing companies should embrace the
aspects of custom duty incentives offered by the government.
