Capital Structure and Financial Performance of Listed Companies at the Nairobi Securities Exchange Market: a Case of Commercial Banks in Kenya
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Date
2017-07
Authors
Charles, Odongo Omwanza
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
The main goal of every commercial bank is to operate profitably to maintain stability and
sustainable growth. Capital structuring is viewed as critical drivers for financial performance of
the banking institution. An appropriate capital structure is a critical decision for any business
organization to be taken by business organization for maximization of shareholders wealth and
sustained growth. The purpose of this study was to examine how capital structure influences
financial performance of NSE listed firms in Kenya. The major focus of this study was to
investigate firms’ specific factors such as working average cost of capital, firm leverage, cash
flow, and control and their effects on financial performance of NSE listed banks in Kenya. The
researcher adopted descriptive research design to achieve this aim. The study targeted eleven
banks listed at the NSE and they were included in the sampling frame if they had a five-year
financial report. Document review was used for collecting secondary data from 2011-2015
annual reports. Descriptive statistics (mean and standard deviation) and multiple regression
analysis and statistical package for social scientists (SPSS) computer software (version 20) was
used to analyse data of the banks specific factors and financial performance, measures return on
asset (ROA) of the firms over a period of five years. The study findings ascertained that
increasing unit levels of cost of capital, financial leverage, cash flow, and control have positive
effect on the financial performance of firms listed at the Nairobi Securities Exchange, Nairobi.
This study, therefore, recommends that commercial banks listed at the Nairobi Securities
Exchange need to reassess their capital structuring so that they can realise better financial
performance. This study provides a basis for enhancing a strong capital structure. The findings of
this study may guide building strong capital structure, specifically on cost of capital, financial
leverage, cash flow, and control. In lieu of these determinants of capital structure, this study
offers a basis to improving financial performance.
Description
A Research Project Submitted in Partial Fulfillment of the Requirement for the Award of Masters Degree in Business Administration of Kenyatta University