Abstract
This research examined how credit risk management affects the financial performance of construction and related companies listed on Kenya's Nairobi Securities Exchange (NSE). Specifically, it analyzed the effects of credit risk assessment, and identification on financial performance, using Return on Equity (ROE) as the key performance indicator. A quantitative research design was employed, utilizing secondary panel data collected from published financial statements of listed companies over a defined period. Stata version 18 was used for data analysis, which includes panel regression modeling, correlation analysis, and descriptive statistics. The findings revealed that credit risk assessment (credit scores and credit risk identification (cash flow coverage ratio) had strong, positive, and statistically significant effects on ROE across all models. The study's regression model revealed that 81% of the variation in ROE was explained by credit risk management variables, implying that other external factors play a minor role. The results underscore the importance of robust credit evaluation, liquidity management, and proactive risk identification in enhancing firm profitability. The study recommends strengthening credit assessment mechanisms, improving cash flow analysis practices, and revisiting current credit monitoring frameworks. These insights provide valuable implications for financial managers, policymakers, and investors in the construction sector.
Key Words: Credit Risk Management, Financial Performance, Nairobi Securities Exchange, Credit Risk Assessment, Return on Equity, Credit Scores, Credit Risk Identification, Cash Flow Coverage Ratio