Draft - Proof - Financial Performance PDF

Cambridge Journal of Economics
Financial Performance of Public Transport firms in Kampala

Metropolitan Area
Journal: Cambridge Journal of Economics
Manuscript ID Draft
Manuscript Type: Article

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Financial performance, Public transport, Fuel
CJE Keywords:
costs, Maintenance costs, Passenger fares
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Page 1 of 23 Cambridge Journal of Economics
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3 Financial Performance of Public Transport firms in Kampala Metropolitan Area
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5 Introduction
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7 The act of performing financial activity is referred to as financial performance. Generally
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financial performance refers to the degree to which financial objectives have been
10 accomplished or are being accomplished (Trivedi, 2010). It is the process of measuring the
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12 results of a firm's policies and operations in monetary terms and it is used to measure firm's
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14 overall financial health over a given period of time but can also be used to compare similar
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firms across the same industry or to compare industries or sectors in aggregation. However,
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17 (Singal,2013 and Ahangar,2011) postulate that there are three dimensions of financial
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19 performance and these include return on assets, growth in sales and employee productivity
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21 whereas (Rathore et al.,2010) suggest that an organisation’s financial performance may be seen
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22 from four angles which are liquidity, solvency, activity and profitability.
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24 Therefore, understanding the elements that influence financial performance of a firm is a
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26 priority objective for management in order to remove those factors that influence negative
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financial performance and to strengthen those that are beneficial. According to (Valentin ,2013)
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29 financial performance of an organisation is influenced by a number of factors, these factors

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31 include size of company, number of assets of the company, number of employees as well as
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33 costs of operations among others. In practice however, only a few of these can be taken into
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consideration. Some scholars have attempted to determine the extent to which these variables
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36 explain the change in financial performance indicators. Selecting the most important factors
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38 that are consistent with corporate profitability has always been a point of interest in the
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40 scientific literature and (Valentin, 2013) postulates that the analysis of the predictors of
41 financial performance of firms is essential for all stakeholders especially for investors.
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43 Recent research studies have also put a lot of emphasis on the analysis of financial and
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45 operational performance of public transport services for example (Berhan et al., 2013;
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Aworemi et al., 2009; Aworemi, and IIori, 2008). This is mainly due to the popularity of public
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48 transport; authorities continue to try to develop efficient, clean and affordable urban public
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50 transport systems that can maintain or even improve total 12 mobility, even as incomes grow
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52 and cities expand (ESMAP, 2012). Unfortunately, public transport operators have been plagued
53 by severe financial constraints and are hard pressed to even meet their fleet replenishment
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55 needs, let alone expand fleets to cater for the growing demand or introduce efficiency
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57 improving technologies.
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Cambridge Journal of Economics Page 2 of 23
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3 Kojima (2001) indicates that public transport operators in developing countries are often cash-
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5 strapped and in many cases, the operating cost per kilometre exceeds revenues and fares are
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7 often kept low irrespective of the cost of providing service. According Deb (2008) due to the
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high operating costs, urban public transport operators increase fares to ensure financial
10 performance which results in reduced ridership. ESMAP (2012) confirms that the financial
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12 position of public transport operators is weak and may not allow rapid vehicle replacement to
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14 upgrade the fleet to new and more efficient vehicles yet city officials in developing countries
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are under strong pressure to improve the efficiency and enhance the attractiveness of public
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17 transportation. This improvement is normally done through public and private partnerships
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19 (PPPs) and subsidies as (Clark et al.,2007) posits that in many cases in the USA, bus
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21 procurements are subsidized with federal funds in order to reduce costs of acquisition. This is
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22 affirmed by Deb (2008) who argues that the growing inability by governments to provide grants
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24 have made financial performance of the public transport firms suffers as a result.
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26 In Kampala the capital city of Uganda the demand for transport services is high and it is mainly
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provided by privately owned minibuses. There are 15,000 minibuses operating within the
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29 Kampala Metropolitan Area (TLB, 2014). According to a (KCCA, 2012) report, the minibuses
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31 carry an average of 100 passengers a day yet the daily travelling population in the Kampala
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33 Metropolitan Area is estimated to be 2.15 million passengers. This translates into a very high
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passenger to vehicle ratio; specifically during peak hours however, findings by Kumar and
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36 Barrett, 2008), indicate that early entrants in the min-bus business earned high returns, which
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38 in turn attracted additional investment until the market saturated. Currently, minibuses struggle
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40 to get passengers during off peak periods and this affects the financial performance of public
41 transport firms.
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43 This high competition coupled with deregulation has resulted into inconsistent passenger fares,
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45 poor quality services and safety issues, among others, (KCCA, 2012). Even the move by the
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government of Uganda to come up with various interventions to curb the deteriorating public
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48 transport situation in the Kampala Metropolitan Area just exacerbated the situation. In the end
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50 however, the biggest problem that has made public transport operations problematic is the
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52 inability to make profit (Abimanyi, 2013) especially in the minibus business where owners rent
53 out the vehicles to drivers at a flat fee, drivers keep the fares they collect but are responsible
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55 for paying fuel costs (which account for 42% of costs Oyer (2007), conductors’ wages, terminal
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57 fees, and other incidental expenses. Drivers face a strong incentive to carry full loads of
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passengers to maximize revenues while minimizing variable costs (Kumar and Barrett 2008).
60 Different companies and individuals have tried public transport business in Kampala only to
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3 be pushed out by high losses and other factors. It is not clear though what exactly is leading to
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5 the poor financial performance of these public transport operators; could it be competition,
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7 stringent transport regulations or operating costs? It is upon this background that the study was
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conducted on the predictors of financial performance of public transport firms.
10 Problem Statement
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12 Although the Kampala Metropolitan Area has a high market for transport services given its
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14 growing population, many public transport firms have failed to meet the increasing demand
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and continue to provide uneconomic transport services. Various public transport firms like the
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17 Uganda Transport Company, City Link, Dream Shuttles, Pioneer Easy Bus and many others
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19 have plied the roads of Kampala only to make huge losses and eventually be pushed out of the
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21 market. This has put forward the notion that urban public transport is not financially viable
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22 given the operating factors and this motivated the researcher to study the predictors of financial
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24 performance of public transport firms in Kampala.
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26 Purpose of the Study
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The purpose of this study was to examine the predictors of financial performance of public
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29 transport firms in Kampala Metropolitan Area.

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31 Objectives of the Study
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33 i. To determine the relationship between fuel costs and financial performance of public
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transport firms in Kampala Metropolitan Area.
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36 ii. To determine the relationship between cost of maintenance and financial performance
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38 of public transport firms in Kampala Metropolitan Area.
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40 iii. To determine the relationship between charges and fees paid and financial performance
41 of public transport firms in Kampala Metropolitan Area.
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43 iv. To determine the relationship between passenger fares collected and financial
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45 performance of public transport firms in Kampala Metropolitan Area.
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47 Geographical Scope
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49 The study was restricted to Public Passenger Transport firms operating within the Kampala
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51 Metropolitan Area. This is because the majority of public transport firms operate from Kampala
52 Metropolitan Area.
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54 Significance of the Study
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56 There has hardly been any of such a study carried out before to examine the financial
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performance of public transport firms in Kampala Metropolitan Area. This study therefore will
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3 motivate transport planners into rethinking about the role financial performance plays on the
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5 performance of public transport firms in Kampala Metropolitan Area.
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Conceptual Framework
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9 Predictors
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11 Financial Performance
12 Cost of maintenance
13  Return on Investment
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Fuel Costs  Profitability
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Charges
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19 Source: Aworemi and IIori (2008) and Aworemi et al.,
20 (2009).Passenger Fares
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23 The cost of maintenance, fuel cost, charges and passenger fares have an influence on the
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financial performance of public transport firms.
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27 Literature Review
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Financial Performance
30 According to (Trivedi, 2010) financial performance refers to the act of performing financial
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32 activity. In a broader sense, financial performance refers to the degree to which financial
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34 objectives have been accomplished. It is the process of measuring the results of a firm's policies
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and operations in monetary terms. While (Singal, 2013) explains financial performance by
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37 variables such as stock returns, return on assets, sales growth, and return on equity. In the same
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39 perspective, (Wicks et al, 2000) define financial performance as return on assets computed as
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41 the ratio of operating income to total assets. Ahangar (2011) provides three dimensions of
42 financial performance; return on assets, growth in sales and employee productivity. Also
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44 (Rathor et al, 2010) assert that an organisation’s financial performance may be seen from four
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46 angles which are liquidity, solvency, activity and profitability.
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The financial performance of companies’ changes over time, therefore examining the
49 predictors of financial performance is essential for all the stakeholders, but especially for
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51 investors. Valentin (2013) suggests the market position of a firm, risk exposure and economic
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53 growth are important factors influencing a firm’s financial performance. Since market value is
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conditioned by the company’s results, the level of risk exposure can cause changes in its market
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56 value. Economic growth is another component that helps to achieve a better position on the
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58 financial markets, because market value also takes into consideration expected future profits.
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60 Valentin (2013) also adds that the size of the company can have a positive effect on financial
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3 performance because larger firms can use this advantage to get some financial benefits in
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5 business relations. Large companies have easier access to the most important factors of
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7 production, including human resources as well as cheaper funding (Valentin 2013).
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According to (Sima, 2009) performance factors can be structured in; factors of efficiency, that
10 refer to economic, social and organizational efficiency, internal environmental factors that refer
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12 to ownership, management, company size, complexity, technical endowment, location, human
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14 potential, informational and intellectual capital, financial position, organizational culture, etc.
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and external environmental factors: economical, technological, political, demographical,
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17 cultural, scientific, organizational, legal, social, educational, environmental and others. Gurian
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19 (2011) focused on the modern factors that influence financial performance such as
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21 organizational culture, corporate social responsibility, innovation, knowledge spill overs and
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22 other advantages offered by business clusters.

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24 Rathore et al (2010) considered liquidity, solvency, activity and profitability as predictors of
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26 financial performance while (Wang and Qian’s study in 2011) found a positive relationship
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between corporate philanthropy and financial performance. This was also confirmed by
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29 (Brammer and Millington, 2008 and Wang et al, 2008). Brammer and Millington (2008) found
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31 that firms with both unusually high and low charitable contributions had better financial
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33 performance than those making an intermediate level of contributions. Ahangar (2011) also
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found a positive relationship between intellectual capital and financial performance while
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36 (Mahmoud, 2008) used financial ratios to describe and predict the financial performance of
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38 insurance companies in Egypt.
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40 Public Transport
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42 White (2002) opines that public transport comprises all modes of transport available to the
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44 public, regardless of ownership and comprises all transport systems in which the passengers do
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not travel by private means. Public transport plays a vital role in achieving sustainability and
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47 efficient mobility in any economy. However, there are many reasons why people do not use
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49 public transport to its full potential. The classical factors in this context are time and money
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51 (Wardman and Waters, 2001). Public transport systems play an important role in providing
52 transportation mobility to a significant portion of the community, while at the same time
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54 combating traffic congestion, reducing carbon emissions, and promoting compact, sustainable
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56 urban communities. Therefore public transport systems play an increasingly important role in
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the way people move around from one place to the other.
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3 The discussion on the significance of urban public transport systems has gained a renewed
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5 importance with the growing awareness of the economic and environmental impacts of public
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7 transport use (Banister, 2000; Ferreira and Cruz, 2009). Transport demand management is seen
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as a crucial strategy for reducing the numerous costs associated with car use, i.e. car drivers
10 should bear the real cost of their decisions (Verhoef et al., 1995; Proost and Dender, 2008 and
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12 Ferreira, 2010) while the underlying benefits derived from “soft modes” within a metropolitan
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14 area should be enhanced (Banister, 2000; Dorsey, 2005; Holmgren et al., 2008). More emphasis
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should be placed on the reduction of traffic congestion, pollution, environmental degradation
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17 and infrastructure use (Verhoef, 1997; Banister, 2000), while continuing efforts to match other
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19 ambitions of transport users such as speed, comfort, as well as service reliability (Yao, 2007;
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21 Litman, 2011; Barata et al., 2013).
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22 Other studies by (Brown et al., 2001; Dorsey, 2005; Marsden, 2006) add that consideration
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24 should be given to reducing public transport tariffs, e.g. through subsidies, to try and increase
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26 their use. Indeed, public transport companies benefit from public subsidies in many countries,
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from either central or local governments (Karlaftis and McCarthy, 1998; Obeng and Sakano,
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29 2000; Bouf and Hensher, 2007; Gwilliam, 2008).

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31 None the less, urban public transport in most developing countries is provided by the informal
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33 sector, which according to (Cervero,2000), comprises mostly small−vehicle, low−performance
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services that are privately operated and that charge commercial rates to, for the most part,
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36 low−income, car−less individuals making non−work trips. Like other informal businesses,
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38 generally speaking, the informal transport sector is made up of self−employed entrepreneurs
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40 who lack official registration, and who work long, hard hours in a highly competitive
41 marketplace.
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43 Performance Measurement in Public Transport Systems
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45 Public transport provides an important mobility for people within urban area throughout the
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world. Therefore, improving performances of the public transport service could essentially
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48 contribute for improving the mobility of passengers and productivity of the economy. This is
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50 because efficient operation of public transport systems contributes to the development of any
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52 society, (Rathore et al., 2010). In the same perspective, (Hawas et al,.2012) affirm that an
53 efficient public transport system can play an essential role in reducing urban travel congestion,
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55 air pollution, energy consumption, and in the long run it can decrease highway investment and
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57 associated impacts.
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To this effect, performance measurement has become the focus of attention in a variety of
60 sectors. Unfortunately, too little has been done to develop valid operational definitions of
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3 performance, or to identify the weaknesses and biases inherent certain types of performance
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5 measures. Among the many other parameters, according to CIRT (1992) vehicle and labour
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7 productivity, fleet fuel efficiency are used as a measure of performance in the urban bus
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transport systems. However, the consideration of computing these parameters may vary. For
10 example, Badami and Haider (2007) modified the parameters: Percentage Load Factor (PLF)
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12 using passenger-kilometre per carrying capacity of buses rather than passenger kilometre per
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14 seat capacity; the financial parameter by passenger-kilometre per litre rather than passenger-
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kilometre per litre and the labour productivity by passenger-kilometre per employee per route
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17 rather than buses per staff which were used in CIRT (1992).
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19 The performance of public transport systems is also evaluated by (Barata et al., 2013) in terms
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21 of both efficiency (i.e. the amount of service provided in relation to the resources spent,
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22 (Sputnic, 2009; Ahn et al., 2005) and effectiveness (attempting to capture the degree of public
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24 transportation service consumption in relation to the amount of resources used or service
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26 available, (Sputnic, 2009). To implement this approach, the indicators are analysed in line with
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the dimensions proposed by (Ahn et al. (2005), i.e. resource-efficiency, resource-effectiveness
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29 and service-effectiveness.
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31 Predictors of Financial Performance of Public Transport Firms
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33 According to (IIT, 2008), the performance of public transport systems is affected by several
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criteria, such as increasing the number of buses, number of bus stops, number of passengers,
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36 and changes along roadways. Therefore, the various issues causing inefficient operation of
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38 public transport services need to be identified and appropriate measures should be formulated
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40 to resolve them. Berhan et al., (2013) also pointed out that the financial performance of bus
41 services is mainly dependent on local labour, fuel and spare part cost but are also greatly
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43 influenced by the efficiency of operations management, road traffic and conditions.
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45 Aworemi and IIori (2008) considered the year of establishment of the companies, total number
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of employee, government regulation on vehicles and spare parts importation, salary trends,
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48 total number of functioning vehicles, cost of operation, state of the roads, influence of exchange
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50 rate, age of the vehicles, effect of para-transit and non-motorized, effect of information and
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52 communication technology, motivational approaches, organizational structure, fares charged
53 as key predictors of financial and operational performance of public and private transport firms
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55 in Nigeria.
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While, (Montalbo and Ishida (1997) posits that the performance of urban public transit is
59 influenced by factors internal as well as external to the system; internal factors refer to the
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3 characteristics of operators such as scale of operations (fleet size, vehicle hours, vehicle
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5 kilometers, maintenance), characteristics of hardware or facilities (age of the buses), ownership
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7 type (public or private). External factors refer to the characteristics of the environment in which
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the system is operating such as road conditions (speed, level of congestion, road network
10 configuration), characteristics of the market being served (population, land use), and
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12 institutional setting of the system (regulated, deregulated).
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14 Aworemi et al., (2009) found that most of the predictors had either a positive or negative
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relationship between themselves as well as with the financial performance of public transport
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17 firms. For example from their findings there was a positive correlation between the financial
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19 performance and the years of operation of the business, total number of employees, wages
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21 trends, total number of functioning vehicles, cost of maintenance, and age of the vehicle. This
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22 implies that as these variables increase; the financial performance of the companies increases.
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24 De Borger and Kerstens (2006) also found a significant relationship between capital and fuel,
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26 capital and maintenance as well as the age of the vehicle. Technically newer buses had better
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fuel efficiency and reduced maintenance costs and thus a rapid turnover to offset costs of
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29 capital. According to (Oyer, 2007; Kumar and Barrett, 2008) fuel is the largest single recurrent
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31 cost of bus operation in African cities and not labour, as in the industrialized countries. With
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33 low wages and high unemployment, the cost of labour in bus operations in Africa can be less
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than 25 percent of the total running costs. For minibus operations, fuel is by far the costliest
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36 input, and that cost has risen with international oil prices in recent years. Further the ESMAP
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38 study in (2012) opines that fuel price is an exogenous variable that depends on the current
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40 market rates for fuel. As fuel price may vary depending on geographical location, and supply
41 and demand conditions. Fuel also makes up a relatively large fraction of total bus operating
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43 costs, especially when labour costs are low, as in many developing countries in addition
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45 (Kumar and Diou, 2010) assert that the operating costs are likely to increase with a raise in fuel
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prices and other factor inputs. It may therefore be critical to adjust fares on a regular basis to
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48 ensure financial sustainability in the long run. None the less the ESMAP study in (2012)
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50 recommended that fuel costs could be reduced by improving the driving style of bus drivers
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52 and through sound maintenance practices.
53 But most operators interviewed by Benmaamar in (2001) had a misconception of the vehicle
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55 life costs with operating used vehicles compared to relatively new vehicles. According to
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57 Benmaamar (2001) the appreciation of costs is strongly influenced by the substantial difference
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between the initial costs required for the purchase of used and new vehicles, and an
60 underestimate of the whole life cost differential of operating them.
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3 The evidence suggests that the age of a vehicle has a direct impact on its productivity and on
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5 its maintenance costs, hence on total vehicle operating costs. Research work undertaken in
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7 Pakistan and India, where vehicles are relatively better maintained than in Sub-Saharan African
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countries, shows that the overall serviceability of used vehicles decreases on average by 10%
10 per year while labour and spare parts maintenance costs increase respectively by 15% and 20%
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12 per year. Using these conservative assumptions, a comparison of vehicle operating costs of a
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14 used minibus with a relatively new minibus over a 5 year period in Uganda shows an increase
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in Vehicle Operating Cost savings of 30% (Benmaamar 2002, Pucher et al. 2004, Deb 2008).
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17 H0: There are no relevant predictors of financial performance of public transport firms in
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19 Kampala Metropolitan Area.
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21 H1: There is a relationship between cost of maintenance and financial performance of public
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24 H2: There is a relationship between fuel costs and financial performance of public transport
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26 firms in Kampala Metropolitan Area.
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H3: There is a relationship between charges and fees paid and financial performance of public
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31 H4: There is a relationship between passenger fares collected and financial performance of
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33 public transport firms in Kampala Metropolitan Area.
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35 Methodology
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37 Research Design
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The study used a cross sectional research design to determine the relationship between the
40 study variables. The study further used quantitative and analytical approach.
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42 Study Population
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44 The entire operators of public transport in Kampala Metropolitan Area are estimated to be
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20,000 operators by the Transport Licensing Board. However, only 1013 operators out of the
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47 20,000 are legally registered as public transport firms. Therefore the target population of this
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49 study was 1013 operators.
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51 Sample Size, Procedure and Response Rate
52 Using the Krejice and Morgan (1970) table to determine the sample size, a total of 278
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54 respondents was selected from the population of 1013 registered operators to comprise the
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56 sample for the study. The unit of analysis was a public transport firm and each was selected
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using simple random sampling. The unit of inquiry was Director, Manager and Officer who
59 had a minimum of certificate level education these were selected using purposive sampling.
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3 Out of the 278 questionnaires that were issued, only 200 questionnaires where fully answered
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5 and returned. 10 questionnaires were considered invalid due to errors resulting from
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7 misinterpretation while 68 questionnaires were not returned by the respondents. The response
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rate obtained was 71.9%, this according to Roscoe (1975) as per the Rule of Thumb is an
10 acceptable response rate. The response rate was determined using a simple model of Response
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12 Rate = (Acquired /Targeted)*100.
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14 Data Sources and Data Collection Instrument
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Primary data was collected from public transport firms using a closed ended questionnaire.
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17 Given the busy nature of the respondents, open ended questionnaires would result into a low
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19 response rate.
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21 Measurement of Study Variables and Model specification
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22 The variables in this study are Fuel Costs, Cost of Maintenance, Passenger fares, Charges and
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24 Financial Performance. Charges were measured by government taxes and licences fees
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26 (Mwaura, 2014), Fuel Costs were measured by pump prices (Kumar and Diou, 2010). The Cost
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of maintenance was measured by the cost of spares and repairs (Aworemi and IIori 2008) and
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29 (Aworemi et al., 2009)). Passenger fares were measured using number of revenue per passenger
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31 mile, American Airlines (2013) and management style, (Mwaura, 2014).Financial performance
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33 was measured by Return on Investment and Profitability (Rathore et al., 2010).
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Following the studies of (Aworemi and IIori, 2008) which involved working with the
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36 independent variables Year/age of establishment of the companies selected (X1), Total number
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38 of employees (X2), Govt. regulation on vehicles and spare parts importation (X3) wages/salary
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40 trends (X4) , total number of functioning vehicles (X5), cost of operation (X6), state of the roads
41 (X7) influence of exchange rate (X8), age of the vehicles (X9), effect of paratransit and non-
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43 motorized (X10) effect of information and communication technology(X11), motivational
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45 approaches (X12), organizational structure (X13) = fare charged (X14). And Aworemi et al.,
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2009) which involved working with the independent variables of years of establishment of the
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48 corporation (X1), Cost of maintenance (X2) government policies on importation of spare parts
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50 (X3), total number functioning vehicles (X4), state of the roads and its networks (X5) effect of
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52 exchange rate (X6), effect of paratransit (X7), staff strength (X8) and organizational
53 structure/managerial factors (X9).
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55 The estimated model was modified and the research study involved working with the
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57 independent variables; X1 =fuel costs, X2 =Cost of maintenance, X3 = charges and fees paid,
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X4 = Passenger fares.
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3 The financial performance function model was estimated using one functional form of a linear
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5 equation to be stated as; Y= a0 +b1 X1 + b2 X2 + b3X3 ……+ bn Xn + Ui
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7 The estimated model is specified as:
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Y= a0 +b1 X1 + b2 X2 + b3X3 ……+ bn Xn + Ui ………… Eqn. (i)
10 Where
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12 a0 = Constant
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14 Xi…..Xn = Explanatory variables
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Bi = Parameters to be estimated (i = 1, 2, 3, - - - -- n)
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17 Ui = Error term or disturbance term
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19 Y = Dependent variable (performance measured as return on investment, (ROI)
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21 X1 = Fuel Costs
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22 X2 = Cost of Maintenance
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24 X3 = Charges and Fees Paid
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26 X4 = Passenger Fares
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28 The Ordinary Least Squares (OLS) were used to derive estimates of the parameters of
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30 explanatory variables in the equations. The best-fit equation was selected based on the value
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of R², t – test and F – test of the overall equation.
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34 Therefore Equation 1: Y= Bo+ B1X1+ B2X2+ B3X3+ Ui becomes: Y= 1. 226 -0.97X1+ 0.224X2-
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36 0.0247X3 + 0.537X4
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38 Instrument Reliability and Content Validity
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40 The instrument was tested for reliability using Cronbach’s Alpha coefficient as shown in the
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42 table 1 below
43 Variable Number of items Cronbach's Alpha Statistic
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45
Fuel Cost 7 0.622
46 Cost of Maintenance 7 0.682
47 Charges and Fees 6 0.687
48 Passenger Fees 9 0.694
49 Profitability 7 0.890
50 Return on Investment 5 0.675
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Source: Primary Data
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53 To test for reliability, a Cronbach’s coefficient alpha was used since its one of the widely used
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55 measure of internal reliability (Kimberlin and Winterstein, 2008). Cronbach’s alpha coefficient
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57 above 0.5 was accepted implying the instrument was valid (Nunnally, 1978). The table shows
58 that all the four variables have Cronbach’s Alpha above 0.6 which is greater than the
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60 recommended.
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3 Validity of the contents of the instrument was tested using the Content Validity Index (CVI).
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5 The CVI results from expert one: 30/41=0.731 and expert two: 32/41=0.780. This means the
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7 experts considered majority of the questions to be very relevant or relevant in examining the
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study variables.
10 Processing, Analysis and Reporting
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12 For purposes of this study, the collected data was analysed using the multiple regression
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14 technique whereby the variance in the independent variables was explained by a set of
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predictors. Data capturing was done using Epi Data while Quantitative Data Analysis was
16
17 carried out using the Statistical Package for Social Scientists (SPSS) version 2.0 to establish
18
19 the correlation among the variables and a correlation coefficient was run to establish the
20
21 direction and strength of the relationships between variables. Multiple regression analysis was
Fo
22 conducted to determine variance in the dependent variable that was explained by the predictor
23
24 variables.
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25
26 Analysis of the findings
27
28
Sample Characteristics of the Public Transport Firms
ee
29 The analysis also looked at the sample characteristics of Public Transport Firms for example
30
31 the number of years of operation and number of vehicles operated by the firm. Respondents
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32
33 were asked about years in operation of business, 33% of the public transport firms were found
34
to have been in business for at least 1 to 3 years, followed by those that had been in operation
35
ev
36 between 3 to 5 years accounting for 24% these were followed by the 20% that have been in
37
38 operation for less than a year and last were those that have been in the business for more than
iew
39
40 10 years. Regarding the number of vehicles owned by the firms, 33% of the firms owned more
41 than 10 vehicles, next were those that owned between 3 to 5 vehicles accounting for 21%, 16%
42
43 of the public transport firms owned between 7 to 10 vehicles. Lastly 20% of them owned
44
45 between 1 to 3 vehicles. This means that majority of the public transport firms had spent 1 to
46
3 years in the business and owned more than 10 vehicles as depicted in table 2 below.
47
48 Table 2: Sample Characteristics of the Public Transport Firms
49
50 Years of Operation Frequency Percent
51 Below 1 Year 40 20
52 Between 1 and 3 66 33
53
Between 3 and 5 48 24
54
55 More than 5 to 10 31 15
56 More than 10 15 8
57 Total 200 100
58 Number of Vehicles Operated by firm
59 More than 1 to 3 40 20
60
1
2
3 Between 3 to 5 42 21
4
5
Between 5 to 7 21 10
6 More than 7 to 10 33 16
7 Above Ten 65 33
8 Total 200 100
9 Source: Primary Data
10
11 Influence of Predictors on Profitability of Public Transport Firms
12
13 The study sought to establish the extent of influence the predictors like fuel costs, cost of
14 maintenance, charges and passenger fares had on profitability of public transport firms as
15
16 shown in the table3 below. When respondents were asked the extent to which the predictors
17
18 influenced profitability of public transport firms, passenger fares obtained the highest mean
19
20
value of 3.60, with a standard deviation of 1.158. This means majority believed that the
21 Passenger Fares predicted profitability of public transport to a high extent. The respondents
Fo
22
23 also believe that fuel cost, charges also influence profitability to a high extent (mean = 3.54,
24
SD = 1.259 mean = 3.46, SD = 1.173) respectively. While Cost of Maintenance moderately
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25
26
influenced profitability (mean = 3.23, SD = 1.081). From the table3 below it is observed that
27
28 almost all the standard deviations are small, meaning that all the predictors influence
ee
29
30 profitability.
31
Table.3 Influence of Predictors on Profitability of Public Transport Firms
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32
33 Predictors N Min Max Mean S.D
34
35 Fuel Costs 200 1 5 3.54 1.259
ev
36 Cost of Maintenance 200 1 5 3.23 1.081

37 Charges e.g. KCCA fees, PSV licenses 200 1 5 3.46 1.173
38 Passenger Fares 200 1 5 3.60 1.158
iew
39 Valid N (listwise) 200

41
42 Influence of Predictors on Returns on Investment of Public Transport firms
43
44 The analysis also sought to establish the extent of influence predictors like fuel costs, cost of
45
46
maintenance, charges and passenger fares had on return on investment of public transport firms.
47 Regarding the extent to which predictors influence returns on investment of public transport
48
49 firms, respondents believed that to a high extent, Fuel Costs, Cost of Maintenance, Charges,
50
51 Passenger Fares influence Returns on investment of public transport firms, this is indicated by
52
the small standard deviation and high mean values. Passenger fares had the highest mean value
53
54 of 3.66 and Standard Deviation of 1.239. While Charges had the lowest mean score of 3.46 and
55
56 standard deviation of 1.190. These findings are summarized in table 4 below.
57
58 Table.4 Influence of Predictors Returns on Investment of Public Transport Firms
59
60 Predictors N Min Max Mean SD
1
2
3 Fuel Costs 200 1 5 3.59 1.137
4
5
Cost of Maintenance 200 1 5 3.48 1.045
6 Charges of KCCA 200 1 5 3.46 1.190
7 Passenger Fares 200 1 5 3.66 1.239
10
11 Predictor Influence on the Charges Paid by Public Transport Firms
12
13 The researcher requested the respondents to indicate the extent to which the predictors like
14 Passenger Service Vehicle (PSV) license fees, terminal Charges, KCCA fees, parking fees
15
16 influenced the total Charges and fees paid by public transport firms. The study found that
17
18 KCCA charges influence Charges paid by public transport firms to a high extent with a mean
19
20
score of 3.49 and Standard Deviation of 1.069 followed by PSV license fees (mean = 3.67, SD
21 = 1.279). While Terminal Charges and Parking fees moderately influence charges paid by
Fo
22
23 public transport firms (mean = 3.22, SD = 1.039) (mean = 2.78, SD = 1.129) respectively. This
24
means that most of the respondents believe that KCCA fees with the highest mean value of
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25
26
3.67 and Standard Deviation of 1.279 influence the amount of Charges paid by public transport
27
28 firms to a very high extent. This is indicated in table 5 below.
ee
29
30
31
Table.5 Predictor influence on the Charges paid by Public Transport Firms
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33 PSV License fees 200 1 5 3.49 1.069
34 Terminal Charges 200 1 5 3.22 1.039
35
ev
36
KCCA fees 200 1 5 3.67 1.279
37 Parking fees 200 1 5 2.78 1.129
iew

40
41
Predictor Influence on Fuel Costs Incurred by Public Transport Firms
42
43 The study requested the respondents to indicate the extent of influence predictors like age of
44
45 vehicle, pump prices, make of vehicle, and driver behaviour had on the fuel costs incurred by
46
47 public transport firms in Kampala Metropolitan Area. The findings in the table 6 below show
48 that respondents believe that pump prices with the highest mean value of 3.71 and Standard
49
50 Deviation of 0.944, Age of vehicle with mean of 3.55, and standard deviation of 1.402,
51
52 influence the fuel costs to a high extent. The findings also indicate that the make of the vehicle
53
54
with mean value of 3.23 and S.D of 1.064 moderately influences fuel costs incurred by public
55 transport firms, while Driver Behaviour moderately influence fuel costs incurred by public
56
57 transport firms (mean = 3.41, SD = 1.250). From the table 6 below it is observed that almost
58
59 all the standard deviations are small, meaning that all the factors influence fuel costs highly.
60
1
2
3 Table.6 Predictor influence on Fuel Costs Incurred by Public Transport Firms
4
6 Age of the vehicle 200 1 5 3.55 1.402
7
8
Pump Prices 200 1 5 3.71 0.944
9 Make of vehicle 200 1 5 3.23 1.064
10 Driver Behaviour 200 1 5 3.41 1.250
13
14 Predictor Influence on Passenger Fares Collected by Public Transport Firms
15
16 The study sought to determine the influence of factors like seating capacity, management style,
17
frequency of Journeys and number of passengers on the amount of passenger fares collected
18
19 by public transport firms. The study found that to a high extent Number of Passengers and
20
21 Frequency of Journeys influence Passenger fares collected by public transport firms (mean =
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22
23 3.59, SD = 1.253), (mean = 3.93, SD = 1.145) respectively. While Seating Capacity and
24 Management Style was found to moderately influence Passenger fares collected by public
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25
26 transport firms. Table.7 below summarizes these findings.
27
28 Table.7 Predictor influence on Passenger Fares Collected by Public Transport Firms
ee
29
30
Predictors N Min Max Mean SD
31 Seating Capacity 200 1 5 3.14 1.328
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32 Management Style 200 1 5 3.27 1.105

33 Frequency of Journeys 200 1 5 3.59 1.253
34 Number of Passengers 200 1 5 3.93 1.145
35
ev
Valid N (listwise) 200

36
37
38 Predictor Influence on the Cost of Maintenance Incurred by Public Transport Firms
iew
39
40 Respondents were also asked to indicate the extent of influence predictors like lubricants,
41
42 spares, tyres, and accident damages on the cost of maintenance incurred by public transport
43
firms in Kampala Metropolitan Area. According to the study results, Accident Damages with
44
45 the highest mean value of 4.01 and standard deviation of 1.075 influenced the cost of
46
47 maintenance incurred by public transport firms to a high extent. This is followed by spares and
48
49 tyres with a mean value of mean = 3.78, SD = 0.868, mean = 3.63, SD = 1.117 respectively.
50 While Lubricants like oil were found to moderately influence the cost of maintenance incurred
51
52 by public transport firms. See table 8 below.
53
55 Lubricants e.g. oil 200 1 5 3.42 1.189
56 Spares 200 1 5 3.78 0.868
57 Tyres 200 1 5 3.63 1.117
58
Accident Damages 200 1 5 4.01 1.075
59
1
2
4
5 Correlations Analysis
6
7 The results below revealed the relationship between fuel costs, cost of maintenance, charges,
8
9
passenger fares and financial performance as analysed using Pearson correlation with respect
10 to the stated objectives of the study.
11
12 Table. 9 Bivariate Correlation between Study Variables
13
14 1 2 3 4 5 6 7
15 Fuel Cost (1) 1
16 Cost of Maintenance (2) .149* 1
17 Charges (3) -.011 -.108 1
18 Passenger Fares (4) .148* .510** -.020 1
19 Financial Performance (5) -.002* .533** -.075 .640** 1
20 Profitability (6) .074 .504** -.086 .644** .883** 1
21 Return on Investment (7) -.068 .457** -.052 .516** 913** 615** 1
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22
*. Correlation is significant at the 0.05 level (2-tailed).
23
24
**. Correlation is significant at the 0.01 level (2-tailed).
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25
26
The correlation between Fuel Cost and Financial Performance
27
28 From table 9 results indicated that there was a significant negative correlations between Fuel
ee
29
30 Cost and Financial Performance ((r= -.002, p<.05). This implies that when Fuel Cost associates
31
with Financial Performance the degree of association will be negative. This points to the fact
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32
33 that the higher the fuel costs the lower the levels of financial performance.
34
35 The correlation between Cost of Maintenance and Financial Performance
ev
36
37 From table 9 above, results indicated that there was a significant positive correlation between
38
iew
39
cost of maintenance and financial performance ((r= .533, p<.01). This implies that when cost
40 of maintenance associates with financial performance the degree of association will be positive.
41
42 The significant coefficient means that the cost of maintenance would have a significant
43
44 influence on the financial performance of a public transport firm. This points to the fact that
45
the higher the cost of maintenance, the higher the levels of financial performance.
46
47 The correlation between Charges and Financial Performance
48
49 Results indicated that there was an insignificant negative correlation between charges, fares
50
51 and financial performance (r= -.075, p>.05). This implies that when charges associate with
52 financial performance the degree of association will be negative. This points to the fact that the
53
54 higher the charges paid the lower the levels of financial performance.
55
56 The correlation between Passenger Fares and Financial Performance
57
Results indicated that there was a significant positive correlation between Passenger Fees and
58
59 Financial Performance (r=.640, p<.05). This implies that when Passenger Fees associates with
60
1
2
3 Financial Performance the degree of association will be positive. This points to the fact that the
4
5 higher the passenger fees the higher the levels of financial performance.
6
7 Regressions
8
9
Table 10. Regression analysis results
10 Model Unstandardized Standardized t Sig.
11 Coefficients Coefficients
12 B Std. Error Beta
13
(Constant) 1.226 .266 4.607 .000
14
Fuel Cost -.097 .042 -.121 -2.314 .022
15
16
Cost Maintenance .244 .052 .286 4.728 .000
17 Charges and Fees -.024 .035 -.036 -.692 .489
18 Passenger Fares .537 .063 .511 8.490 .000
19 a. Financial Performance
20 R = .694 F Statistic = 45.386
21 R Square = .482 Sig. = .000
Fo
22 Adjusted R Square = .472

24
Multiple regression analysis was conducted to determine variance in the financial performance
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25
26
27
of public transport firms in Kampala Metropolitan Area that is explained by the fuel cost, cost
28 of maintenance, charges and fees and passenger fares.
ee
29
30 As per the SPSS generated table above, the equation
31
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32 Y= Bo+ B1X1+ B2X2+ B3X3+ Ui becomes: Y= 1. 226 -0.97X1+ 0.224X2- 0.0247X3 + 0.537X4
33
The regression equation above established that holding all factors (fuel cost, cost maintenance,
34
35
ev
charges and fees and passenger fares) constant at zero, determines financial performance at
36
37 1.226. The findings presented also shows that taking all other independent variables at zero, a
38
iew
39 unit increase in fuel cost leads to a 0.97 decrease in financial performance of public transport
40 firms in Kampala Metropolitan Area.
41
42 A unit increase in costs of maintenance would lead to a 0.224 increase in financial performance
43
44 of public transport firms in Kampala Metropolitan Area; and a unit increase in charges and fees
45
46
would lead to a 0.024 decrease in financial performance of public transport firms in Kampala
47 Metropolitan Area. Lastly, a unit increase in passenger fares would lead to a 0.537 increase in
48
49 financial performance of public transport firms in Kampala Metropolitan Area; At 0.05% level
50
51 of significance and 95% level of confidence, fuel costs had a 0.022 level of significance; cost
52
of maintenance showed a 0.000 level of significance; charges showed a 0.0489 level of
53
54 significance while passenger fares showed a 0.000 level of significance.
55
56 These results imply that fuel cost, cost of maintenance, and passenger fees greatly predict the
57
58 financial performance of public transport firms in Kampala Metropolitan Area.
59
60
1
2
3 Further still, the model was found to be well specified and the model’s predictive power is
4
5 47.2%, an implication that fuel cost, cost of Maintenance, charges and fees, and passenger fares
6
7 predict financial performance by 47.2%. Passenger fares is most influential at predicting
8
9
financial performance (β4= .537, p <0.05) followed by cost of maintenance (β= .244, p <0.05),
10 and last was charges and fees (β= -.024, p >0.05). The regression model was statistically
11
12 significant (p <0.01).
13
14 Discussion, Conclusion and Recommendations
15
Cost of Maintenance and Financial Performance
16
17 The study found that the cost of maintenance predicted financial performance of public
18
19 transport firms in Kampala Metropolitan Area to a high extent. This is in line with the research
20
21 hypothesis one: There is a relationship between cost of maintenance and financial performance
Fo
22 of public transport firms. This corroborates the earlier findings of (Aworemi et al., 2009);
23
24 Aworemi and IIori (2008) that preventive maintenance has a significant influence on the
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25
26 financial performance of small scale transporters. Also an ESMAP study in (2012)
27
28
recommended that operational costs could be reduced through sound maintenance practices
ee
29 thus improving the financial performance of transport firms.

30
31 Therefore public transport firms should invest more funds in preventive maintenance in order
rR
32
33 to avoid other costs that could result out of poor maintenance. However, the costs have to be
34
managed and maintenance should be done regularly to achieve efficiency and improve
35
ev
36 financial performance.
37
38 Fuel Cost and Financial Performance
iew
39
40 The results indicated that fuel costs to a high extent influence financial performance of public
41 transport firms in Kampala Metropolitan Area. This supports the research hypothesis two:
42
43 There is a relationship between fuel costs and financial performance of public transport firms
44
45 in Kampala Metropolitan Area. According to (APSRTC,2011; Kumar and Diou, 2010 and
46
Oyer, 2007) fuel costs make up the largest fraction of vehicle operating costs in developing
47
48 countries. Kumar and Barrett (2008) further explain that fuel is the largest single recurrent cost
49
50 of bus operation in African cities. Therefore the findings of this study are in line with past
51
52 studies which also found a significant but negative relationship between fuel costs and financial
53 performance of transport companies. However, an ESMAP study in (2012) opines that fuel
54
55 cost is influenced by fuel prices yet fuel price is an exogenous variable that depends on the
56
57 current market rates for fuel, geographical location, and supply and demand conditions. It may
58
59
therefore be critical to adjust fares on a regular basis to ensure financial sustainability in the
60
1
2
3 long run. None the less the ESMAP study in (2012) recommended that fuel costs could be
4
5 reduced by improving the driving style of bus drivers and through sound maintenance practices.
6
7 Therefore fuel costs could be reduced by improving the driving style of bus drivers and through
8
9
sound management and maintenance practices.
10 Charges and Financial Performance
11
12 The study found that charges influenced to a moderate extent financial performance of public
13
14 transport firms in Kampala Metropolitan Area. This supports hypothesis three that: there is a
15
relationship between charges and fees paid and financial performance of public transport firms.
16
17 These findings are consistent (Mwaura, 2014) who found that all charges reduced the
18
19 profitability of public transport providers however, (Mwaura, 2014) explained that taxes and
20
21 levies by TLB affected the financial performance of “matatu” businesses in Kenya to a great
Fo
22 extent whereas others like parking fees where insignificant. Deb (2008) also argued that the
23
24 growing inability by governments to provide grants made financial performance of the public
rP
25
26 transport firms suffers as a result.
27
28
Therefore much as the influence of the charges was insignificant they need to be paid early and
ee
29 also should be aligned to the effect they have on the financial performance of the public
30
31 transport firms.
rR
32
33 Passenger Fares and Financial Performance
34
The study found that passenger fares influenced financial performance of public transport firms
35
ev
36 in Kampala Metropolitan Area to a very high extent. This affirms hypothesis four: That there
37
38 is a relationship between passenger fares and financial performance of public transport firms.
iew
39
40 In a related study (Aworemi and IIori, 2008) found that though insignificant, the higher the
41 fare the higher the profit margin, and this indicates an improvement in the financial
42
43 performance.
44
45 Deb (2008) also noted the importance of fares in increasing the level of financial performance.
46
According to Deb (2008) due to the high operating costs, urban public transport operators
47
48 increase fares to ensure financial performance thus inherently suggesting that passengers fares
49
50 significantly and positively impact on financial performance of public transport firms. This
51
52 means that public transport firms should strive to increase the amount fares collected through
53 improve customer service, increased collection points as well as proper management and
54
55 accountability for the fares they collect from passengers.
56
57 Limitations of the study
58
59
Currently there is a dearth of information on public transport operations in Uganda; most
60 operators do not keep records of their operational expenses.
1
2
3 Unwillingness and uncooperativeness of respondents to fill in the questionnaires for fear of
4
5 losing classified information to competitors.
6
7 This was overcame by clearly explaining the intentions of the study.
8
9
10
11
12
13
14
15
16
17
18
19
20
21
Fo
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23
24
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Cambridge Journal of Economics

Financial Performance of Public Transport firms in Kampala

Journal: Cambridge Journal of Economics

Manuscript Type: Article

29 financial performance of an organisation is influenced by a number of factors, these factors

29 transport firms in Kampala Metropolitan Area.

22 other advantages offered by business clusters.

29 2000; Bouf and Hensher, 2007; Gwilliam, 2008).

22 transport firms in Kampala Metropolitan Area.

29 transport firms in Kampala Metropolitan Area.

36 Cost of Maintenance 200 1 5 3.23 1.081

39 Valid N (listwise) 200

32 Predictors N Min Max Mean SD

39 Source: Primary Data

32 Management Style 200 1 5 3.27 1.105

Valid N (listwise) 200

22 Adjusted R Square = .472

29 thus improving the financial performance of transport firms.

36 Journal, Vol. 29, pp: 1325– 1343.

25 Gwilliam, K. (2008). A review of issues in transit economics. Research in Transportation

39 analytic approach. Transportation, Vol. 24 No. 3, pp. 253-70.

39 policies: the impossibilities of parking policies in traffic regulation. Transportation

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