EFFECTS OF CAPITAL STRUCTURE ON FINANCIAL PERFORMANCE OF FIRMS IN KENYA: EVIDENCE FROM FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE

Caroline Nyakiringa Githire · Willy Muturi

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Corporate Finance and Governance Financial Analysis and Corporate Governance Working Capital and Financial Performance

Abstract

The main purpose of the study was to examine the effect of capital structure on the performance of firms listed at the Nairobi Securities Exchange. The population of interest was the firms listed at the Nairobi Securities Exchange and a census of all firms listed at the Nairobi Securities Exchange from year 2008-2013 was the sample. The study adopted an explanatory nonexperimental research. Secondary data was obtained from the published annual reports and financial statements of the listed companies at the NSE covering the years 2008 to 2013. The collected data was entered into the Statistical Program for Social Sciences (SPSS) and multiple regression analysis method was used to analyze and test the hypotheses. The findings showed that equity and long term debt have a positive and significant effect on financial performance, while short term debt has a negative and significant effect on financial performance. Thus, this study concludes that equity and short debt financing enhances financial performance, while short terms reduces financial performance.

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1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1984Corporate financing and investment decisions when firms have information that investors do not have 1958The Cost of Capital, Corporation Finance and the Theory of Investment 1977Determinants of corporate borrowing 1990Practical Research: Planning and Design 1984The Capital Structure Puzzle 1995What Do We Know about Capital Structure? Some Evidence from International Data 2001The theory and practice of corporate finance: evidence from the field

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