Financial Leverage and Performance of the Agricultural Companies Listed at Nairobi Securities Exchange, Kenya
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Date
2019-12
Authors
Eysimkele, Andrew Rage
Koori, Jeremiah Maimba
Journal Title
Journal ISSN
Volume Title
Publisher
Stratford Peer Reviewed Journals and Book Publishing
Abstract
The purpose of this study was to establish the effects of financial leverage on financial
performance of the agricultural companies listed at Nairobi Security Exchange market in
Kenya. Precisely, this research emphasized on the effects of debt financing, debt-equity
finance, long terms debts and short terms debts on financial performances of agricultural
firms listed at Nairobi security market in Kenya. The research utilized panels data as obtained
from secondary source including yearly financial records of agricultural companies listed in
the securities market at Capital Market Authority website, Nairobi Security Exchange
handbooks for the periods of reference and library materials. This research study assumed
explanatory and non-experimental research designs to analyze the relationship between
financial performances and leverage for agricultural organizations trading at the security
markets in Kenya. Various attributes of financial leverage were described using descriptive
analysis. The study used panel regression method to examine data as a model. Both
correlation and regression analysis were applied to examine the link involving the study
variables. The study findings revealed that debt equity financing had a positive and
significant effect on return on asset. The study further found that long term debt and shortterm debt had a negative and significant effect on return on asset. In addition, the study found
that debt financing had a positive albeit insignificant effect on return on asset. The study
concluded that debt equity financing had a positive and significant effect on return on asset.
The implication is that increase in debt equity financing makes it easy for companies to
effectively manage their assets. Further, the concluded that long term debt and short-term
debt had a negative and significant effect on return on assets. The implication is that the more
firms depend on debts, the lower the return on assets. This could be associated with the fact
that instead of using its returns for reinvestment, it uses it to meet liabilities of the creditors.
The study recommends that managers of the agricultural companies listed at Nairobi Security
Exchange market in Kenya should employ minimal debt level which will not affect the firms’
performance due to the adverse effect of short term debt on return on asset.
Description
A Research Article in the Journal of Finance & Accounting
Keywords
Financial Leverage, Performance, Agricultural Companies, Nairobi Securities Exchange
Citation
Eysimkele, A. R. & Koori, J. M. (2019). Financial Leverage and Performance of the Agricultural Companies Listed at Nairobi Securities Exchange, Kenya, Journal of Finance & Accounting, 3(5), 76-88.