Capital Structure and Financial Performance of Insurance Companies Listed in the Nairobi Securities Exchange
Collins, Mbura Onyancha
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The optimal capital structure levels and capital structure decisions that impact on the how a firm performs has been a great dilemma for many. Capital structure decisions have an impact on the growth and profitability of a firm as these decisions enable firms maximize their shareholder’s wealth. This study sought out to determine the influence of capital structure on the financial performance of insurance firms listed in the NSE. The study was guided by the following variables that entail, debts, Equity, and Preference shares. The study was guided by the following research objectives that entail: to determine how debts impact the performance of firms in the NSE, to establish how equity impacts the performance of firms listed in the NSE, and to find out how preference shares affect the performance of firms listed in the NSE. This research objective formed part of the research hypotheses. The scope of the study entailed insurance firms that have been listed in the Nairobi Stock exchange. The study will be of great significance to the creditors, investors, researchers and the capital markets authority in regards to regulating the market. The study was guided by the following theories that entail: the pecking order theory, the tradeoff theory, and Modigliani and miller theory. The researcher employed a descriptive research design to describe the independent variable. The data collection that was used in this study was secondary data. The data was obtained from the NSE library. The findings show debt capital has a notable impact on the financial performance of insurance companies. Equity of the firm was found to have a significant effect on a relationship with financial performance. The study findings also indicated that there was a unit increase in financial performance by an insignificant factor of . 8%. The findings revealed that capital structure affects the financial performance of insurance firms at the NSE. In view of this, it is recommended that if the insurance firms are capable of funding their operations through equity should do so and reduce undertaking borrowings as this will boost their overall performance.