Abstract:
The Purpose of the study was to assess the effect of custom duty incentives on
financial performance of manufacturing firms in Kenya. The study focused on the
manufacturing companies registered by Kenya Association of Manufacturers. 447
manufacturing companies in the register of Kenya association of Manufacturers in
2019 were included in the study. Stratified random sampling technique was used to
determine the sample size, and 211 manufacturing companies were selected for the
study. Primary data was collected using questionnaires targeting accountants and
other senior management officers in the 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 was analysed
using SPSS version 25. Both descriptive and inferential statistics were used and
diagnostic tests involving multi-collinearity tests, auto-correlation, heteroscedasticity
and test of normality carried out. 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 to determine the predictive
model. Pseudo-R square was computed which showed that custom duty incentives
explains 4% of the change in financial performance meaning there are other factors
that contribute to the change in financial performance. Custom duty incentive was
significantly related to financial performance of manufacturing companies. It was
concluded that custom duty contributes positively to the financial performance of
manufacturing companies in Kenya and that manufacturing companies should
embrace custom duty incentives offered by the government.
