PHD-Department of Accounting and Finance

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Firm Characteristics And Firm Efficiency Of Deposit Taking Savings And Credit Cooperatives Societies In Kenya
(Kenyatta University, 2024-11) Gichinga, Raphael Njenga
Saccos contributes 2% of Kenyan GDP where output of members` loans account a 73.9% of the total industry asset size while input of members deposits forms the main source of financing. Complaints on loan issuance and other short term obligations maintain relatively high levels at 24.69%,19.72% and 22.27% for years 2019, 2018 and 2020 respectively contrary to growing members` deposit contributions with an average paid interest on deposits declining from 7.1%, 6.72% and 6.01% from year 2017, 2019 and 2020 respectively. Studies relates the interplay between firm characteristic, liquidity mediatory role and moderation by SASRA as a remedy to the anomaly. This study`s general objective sort to investigate effect of firm characteristics on firm efficiency in deposit taking SACCOs in Kenya. Specifically, the study assessed effect of age, earning asset, capital structure and technological investment on firm efficiency of deposit taking savings and credit society in Kenya being moderated by SASRA regulations and mediated by liquidity levels. The study was underpinned by financial intermediation theory, economic efficiency theory, capital structure theories, task technology fit theory, life cycle learning theory of the firm and neo institutional theory. The study adopted a positivist paradigm and causal research design. The study was census in nature where quantitative secondary panel data was extracted from all SACCOS audited financial reports between year 2015 to 2021.The target population was 176 deposit taking societies in Kenya as at 31st December 2021 and response rate was 100%. Diagnostic tests were carried on panel unit root test for model effects suitability, tests on multicollinearity, normality, heteroscedasticity and autocorrelation to avoid spurious results. Efficiency scores were generated through data envelopment analysis model and regression analysis run through stata version13.Study findings, conclusions and recommendation were presented using graphs, tables and charts. The study findings indicate that Saccos efficiency is not optimal but has an increasing growth trend with variable return to scale contributing the highest efficiency levels relative to scale efficiency and constant return to scale efficiency. Age has a positive and statistical significance while capital structure has a positive but not significantly effect on level of efficiency. Technological investment and DTS` size has a negative but significant relationship to influence saccos efficiency levels. Saccos have maintained low levels of asset size in adherence to regulation in contrast to registered liquidity ratios above the minimum required threshold by authority. Additionally, the study established that liquidity mediates relationship of firm characteristics and firm efficiency while Sasra regulation does not significantly moderate relationship between firm characteristics and firm efficiency. The study recommends deposit taking savings and credit societies to formulate and implement long term survival strategies while concentrating on core business of loans issuance and cautiously engage on investment of excess funds. Management board should strategize and put in place rebate payment policy and adhere to the set regulations on external borrowing and enhance strategies on deposits collections. The study recommend government to reduce levies imposed on member’s deposit in order to enhance efficiency levels. The study suggests further research to ascertain whether the specific capital structure mix elements are significant influencers to deposit taking savings and credit societies` efficiency. Additionally, a study is recommended on the ideal deposit levy rate to ensure a balance between funding the regulation activities and deposit`s levies rate which is not detrimental to deposit taking savings and credit societies efficiency in Kenya.
Prudential Regulation And Financial Health Of Deposit Taking Savings And Credit Cooperative Societies In Kenya
(Kenyatta University, 2025-05) Wanjiru, Peter Njuguna
Deposits taking savings and credit cooperatives societies segment plays a significant role in the country’s economic growth and the stability of its financial system. It promotes saving, investment and financial inclusion through financial intermediation. Though there exist prudential regulation that guides these financial institutions, some have had their licenses revoked, while others had their licenses renewed conditionally. In addition, the of trend of the segment’s financial health as reflected by return on assets has been fluctuating, implying that the segment has not been continuously optimising utilization of the assets at its disposal. This makes the financial forecasting and planning of the segment challenging. The general objective of the study was to investigate the effect of prudential regulation on the financial health of deposit taking savings and credit cooperatives in Kenya. The specific objectives were to establish the effect of asset quality on financial heath; to establish the effect of capital adequacy on financial health; to determine the effect of liquidity on financial health and to determine the moderation effect of technical efficiency on the relationship between prudential regulation and financial health of deposit taking savings and credit cooperatives in Kenya. The study was guided by Financial Instability Hypothesis, Disruptive Innovation Theory, Shareholders Theory, Capital Buffer theory, Information Asymmetry Theory, Liquidity Shiftability Theory and Efficiency Structure Theory. The study inclined toward positivism philosophy and adopted explanatory research design. Secondary data for period 2018 to 2022 were collected using data extraction sheets. The target population was one hundred and seventy-six while the sample size was one hundred and fifty-nine, derived by utilizing inclusion exclusion criteria. Data was analyzed using STATA, where both descriptive statistics and inferential analysis were conducted. Diagnostic tests carried out included the test of normality, heteroskedasticity, multicollinearity, autocorrelation, stationarity and the Hausman test. Descriptive statistics summarised the panel data in terms of means, standard deviations, maximum and minimum figures. Inferential analysis carried out regression analysis and tested hypotheses to draw conclusion. Results from data analysis were presented in tables and figures. Results showed that asset quality had mean value of 0.1163,6 a p-value of 0.000 and a beta value of -0.08680, implying that asset quality has significant effect on financial health. On the other hand, capital adequacy had mean value of 0.2256, a p-value of 0.000, with a beta coefficient of 0.02924, implying that capital adequacy has significant effect on financial health. Liquidity had mean value of 0.2263, a p-value of 0.013, with a beta coefficient of 0.002548, implying that liquidity has significant effect on financial health. Technical efficiency was found to have no significant moderating effect on the relationship between prudential regulation and financial health. From the findings, the study recommends these institutions to strategically restructure their credit policies as per the main sector from which they draw their membership from, to contain the surge of non-performing loans. Again, they should constantly evaluate their capital requirements and adjust their capital levels according to their plans to ensure that the capital levels always comply with the set regulatory requirements. Moreover, they should monitor their cash flows and maintain a liquidity buffer. Management of the institutions can utilise the findings to intensify and optimize the utilization of available resources, while the government and the regulator can utilise these findings for policy formulation in order to improve the financial health of the deposit taking savings and credit cooperatives in Kenya. Additionally, the management of related financial institutions carrying out deposit taking business can exploit these findings to formulate policies and promote the financial health of their institutions.
Environmental, Social And Governance Practices And Financial Performance Of Selected Banks Quoted In African Securities Exchanges
(Kenyatta University, 2025-06) Njuguna, Isaac Muchiri
The financial performance of banks in both developed and developing economies has been a matter of significant concern since the global financial crisis of 2008. A longitudinal analysis of the global banking industry over the past two decades reveals a recurring pattern of cyclical volatility and uneven performance. In particular, profitability within Africa’s five largest banking markets—namely Egypt, Kenya, Morocco, Nigeria and South Africa—has exhibited a marked decline since 2016. A key global force shaping the operations and performance of banks today is the increasing requirement for institutions, including banks, to adopt and integrate environmental, social and governance (ESG) practices into their core operations. The objectives of this study were to evaluate the effects of environmental, social and governance practices on financial performance of selected banks quoted in African securities exchanges. In addition, the study sought to establish the moderating effect of bank size on the relationship between environmental, social and governance (ESG) practices and the financial performance of the banks. The study was guided by the shareholders value theory, stakeholders theory, legitimacy theory, slack resources theory, signaling theory and agency theory. A positivist research philosophy was adopted. The study further employed an explanatory non-experimental approach. The study utilized purposive sampling to select 15 banks from a population of 145 banks quoted in African securities exchanges. The 15 banks are the ones which had consistently provided data on ESG and financial performance from 2013 to 2022, which is the period of study. The study relied on secondary data on ESG scores and financial performance which was obtained from the London Stock Exchange Group database. Data analysis included descriptive and inferential statistics, with panel multiple regressions to account for time and cross-sectional dimensions. The regression results established that environmental practices had a statistically significant positive effect on financial performance as measured by Return on Assets (ROA). In contrast, environmental practices had a negative but statistically insignificant effect on financial performance as measured by Tobin’s Q. Further, social practices had a positive but statistically insignificant effect on ROA, and a negative but statistically insignificant effect on Tobin’s Q. Moreover, while governance practices exhibited a significant positive effect on ROA, they did, in contrast, exhibit a significant negative effect on Tobin’s Q. The study also conducted the moderating effect analysis of bank size on the relationship between ESG practices and financial performance of the selected banks. The findings established that bank size moderated the relationship between governance practices and financial performance as measured by ROA. In contrast, bank size did not moderate the relationship between environmental and social practices and financial performance as measured by ROA, and on all the three ESG practices on financial performance as measured by Tobin’s Q. Based on these findings, the study concludes that governance practices have a significant effect on ROA and Tobin’s Q, while environmental practices have a significant effect on ROA. Further, both environmental and social practices have no significant effect on Tobin’s Q. Although bank size moderates the relationship between governance practices and ROA, it does not significantly affect the interaction between social and environmental practices on ROA, nor any ESG factors on Tobin’s Q. Consequently, the study recommends strengthening environmental and governance frameworks to enhance financial performance. Further research is suggested to investigate the effect of ESG practices on other financial institutions, including credit unions and microfinance institutions.
Bank-specific characteristics and financial distress of commercial banks in kenya
(Kenyatta University, 2024-11) Githinji, Mary Wangechi
Empirical evidence on the banking industry in Kenya indicates that local banks have been prone to financial distress. Commercial banks in Kenya have been experiencing cycles in Financial Distress and though such cycles have been precipitated by Bank-Specific Characteristics in other countries. It is still a challenge for empirical investigation as to know whether Bank-Specific Characteristics significantly affect Financial Distress in Kenya’s banking industry. Subsequently, the basis of this research was to evaluate the connection between Bank-Specific Characteristics and Financial Distress of commercial banks in Kenya. Explicitly, the research was informed by the following: to determine the connection between Bank Size, Deposit Mobilization, Profitability Growth and Income Diversification on Financial Distress of commercial banks in Kenya; further, the research aimed to determine the moderating effect of bank concentration on the connection between bank-specific characteristics and financial distress of commercial banks in Kenya. The Gambler’s ruin theory, Gibrat law theory, Financial Intermediation theory, Wrecker’s theory, Agency theory, Modern portfolio theory and Institutional theory provided theoretical anchorage to the research. Positivism research philosophy and causal research design were adopted for the study. The research was a census of all the 36 fully operational commercial banks in Kenya for the period 2011 through 2019. Secondary data was utilized in this study. Data sources included: websites of the Central Bank of Kenya and individual Commercial Banks, audited financial statements and Annual supervision reports. Data analysis entailed use of descriptive and inferential statistics where the latter involved dynamic panel logistic regression analysis. Diagnostic tests undertaken in the study included: model specification, stationarity, autocorrelation, and multicollinearity tests. Hypotheses were tested at a significance level of 0.05. Data was displayed through frequency tables and graphs. Based on the dynamic panel Logistic regression analysis, the research revealed that Bank size had no significant effect on Financial Distress based on Bankometer Score (p= 0.062) and Zmijewski (p= 0.938). The study findings also suggested that Deposit Mobilization had an insignificant effect on Bankometer Score (p=0.761) and positive significant effect on Zmijewski Score (p= 0.019). Profitability Growth had an insignificant effect on both Bankometer Score (p=0.963) and negative insignificant effect on Zmijewski Score (p=0.445). Income Diversification had a significant effect on Bankometer Score (p=0.002) and negative insignificant effect on Zmijewski Score (p=0.137) on commercial banks in Kenya. Bank Concentration had a significant moderating effect on the connection between Bank Characteristics and Bankometer Score with (p=0.0000) Bank Concentration also had a significant moderating effect on the connection between Bank Characteristics and Zmijewski Score (p=0.0003). The study recommended that banks ought to embrace proactive measures to increase their deposit base by developing attractive deposit products and engaging in aggressive marketing, also engage in effective risk management practices that increases operational efficiency The study further recommends banks to diversifying their revenue streams into new business areas and markets while considering risks and capabilities
Firm characteristics and financial stability of deposit taking savings and credit co-operative societies in Kenya
(Kenyatta University, 2024-11) Birisi, Hesborn O.
In Kenyan, the financial stability of deposit-taking savings and credit cooperative societies (DT SACCOs) has experienced a downward trend as evidenced by increase in non-performing loans (NPLs), a significant concern in recent years. The SACCOs Regulatory Authority's 2020 report highlights the increasing percentage of NPLs to gross loans. If this trend continues, it will negatively impact on the sector’s ability to provide essential financial services. This study investigated the effects of firm characteristics on financial stability of deposit-taking savings and credit cooperative societies in Kenya. Specifically, the study examined the effects of liquidity, capital adequacy and management efficiency on financial stability of SACCOs in Kenya. Additionally, it examines how the operating environment and competitiveness moderate and mediate these relationships, respectively. The research was grounded on agency, market power, financial intermediation, and liquidity preference theories. Utilizing a positivist and an explanatory research design, the study targeted 160 operational institutions, collecting data from their financial records and regulatory reports from 2017 to 2021. The research performed diagnostic tests of Normality, Heteroscedasticity, multicollinearity, stationarity, and model specification before applying regression models Data was analyzed using descriptive and inferential statistics with STATA software. The researcher adhered to ethical considerations of confidentiality, privacy and anonymity. The findings showed that adequacy of capital, liquidity, and management effectiveness together account for about 71.96% of the differences in financial stability among these cooperative societies (R-squared value of 0.7196). Specifically, having enough capital was linked to fewer non-performing loans (NPLs) (β=-0.3249614, p-value=0.000<0.05), higher liquidity was associated with a higher NPL ratio (β = 0.410056, p=0.003<0.05), and better management led to fewer NPLs (β=-0.0710747, p-value=0.002<0.05). The operating environment was found to significantly affect how firm characteristics influence financial stability. However, the level of competition among these entities only partly explained the relationship between firm characteristics and financial stability. In view of the findings, it is recommended that regulatory authorities in Kenya should take a proactive stance in establishing and enforcing robust capital adequacy standards for these institutions. The study findings highlight the critical role of capital adequacy in ensuring the financial stability of these cooperative societies. In addition, higher levels of capital adequacy and improved management efficiency are associated with reduced NPLs ratio among SACCOs in Kenya, hence improved financial stability. The study thus recommends that the managements of these financial institutions should consider exploring opportunities to strengthen their capital adequacy ratio through prudent financial management and strategic partnerships and strive to improve on their management efficiency. Additionally, SACCOs in Kenya should observe liquidity management guidelines by SASRA and maintain an optimal balance between liquidity and lending activities
Corporate governance mechanisms, regulatory framework and financial performance of publicly cross-listed companies at East African community region
(Kenyatta University, 2025-10) Mweta, Titus Mutambu
The mixed trend in financial performance has been a significant obstacle for publicly traded corporations, garnering the interest of academicians and financial analysts. The decrease has made a significant contribution to substantial financial losses and abrupt corporate collapses. Action taken to respond to corporate governance issues in the East African Community region includes implementing privatization policies and enhancing the role of capital markets regulators in safeguarding shareholders' investments. The main obstacle encountered by corporate board members and shareholders is to determine appropriate governance frameworks and the effect of different governance arrangements on financial performance. This research investigated the effect of corporate governance mechanisms on the financial performance of companies cross-listed in the East African Community region. The specific objectives were to establish the effect of independent directors, executive director's remuneration, executive director's shareholding, independent auditors, corporate block ownership and product market dominance on the financial performance among the companies cross-listed in the East African Community region. The study analyzed the influence of the regulatory compliance index on the corporate governance mechanisms and financial performance correlation. This was informed by the ideas of agency, stewardship, stakeholders, institutional and resource dependence theory. This study is grounded in the positivistic research philosophy. The study utilized an Explanatory non-experimental research design. A total of 9 companies out of 11 cross-listed were picked to form the sample size through purposive sampling. This study employed secondary panel data extracted from the integrated reports, audited financial statements, shareholder profiles and investor relations reports from 2013 to 2022. Diagnostic tests were performed to validate adherence to the principles of the classical linear regression model; autocorrelation was detected (p-value =0.000)<0.05), correlation coefficient for all variables was less than 0.85 and 0.1
Corporate governance mechanisms, regulatory framework and financial performance of publicly cross-listed companies at East African Community Region Titus Mutambu Mweta
(Kenyatta University, 2024-10) Mweta, Titus Mutambu
The mixed trend in financial performance has been a significant obstacle for publicly traded corporations, garnering the interest of academicians and financial analysts. The decrease has made a significant contribution to substantial financial losses and abrupt corporate collapses. Action taken to respond to corporate governance issues in the East African Community region includes implementing privatization policies and enhancing the role of capital markets regulators in safeguarding shareholders' investments. The main obstacle encountered by corporate board members and shareholders is to determine appropriate governance frameworks and the effect of different governance arrangements on financial performance. This research investigated the effect of corporate governance mechanisms on the financial performance of companies cross-listed in the East African Community region. The specific objectives were to establish the effect of independent directors, executive director's remuneration, executive director's shareholding, independent auditors, corporate block ownership and product market dominance on the financial performance among the companies cross-listed in the East African Community region. The study analyzed the influence of the regulatory compliance index on the corporate governance mechanisms and financial performance correlation. This was informed by the ideas of agency, stewardship, stakeholders, institutional and resource dependence theory. This study is grounded in the positivistic research philosophy. The study utilized an Explanatory non-experimental research design. A total of 9 companies out of 11 cross-listed were picked to form the sample size through purposive sampling. This study employed secondary panel data extracted from the integrated reports, audited financial statements, shareholder profiles and investor relations reports from 2013 to 2022. Diagnostic tests were performed to validate adherence to the principles of the classical linear regression model; autocorrelation was detected (p-value =0.000)<0.05), correlation coefficient for all variables was less than 0.85 and 0.1
Firm characteristics and financial stability of deposit taking savings and credit co-operative societies in Kenya
(Kenyatta University, 2024-11) Birisi, Hesborn O.
In Kenyan, the financial stability of deposit-taking savings and credit cooperative societies (DT SACCOs) has experienced a downward trend as evidenced by increase in non-performing loans (NPLs), a significant concern in recent years. The SACCOs Regulatory Authority's 2020 report highlights the increasing percentage of NPLs to gross loans. If this trend continues, it will negatively impact on the sector’s ability to provide essential financial services. This study investigated the effects of firm characteristics on financial stability of deposit-taking savings and credit cooperative societies in Kenya. Specifically, the study examined the effects of liquidity, capital adequacy and management efficiency on financial stability of SACCOs in Kenya. Additionally, it examines how the operating environment and competitiveness moderate and mediate these relationships, respectively. The research was grounded on agency, market power, financial intermediation, and liquidity preference theories. Utilizing a positivist and an explanatory research design, the study targeted 160 operational institutions, collecting data from their financial records and regulatory reports from 2017 to 2021. The research performed diagnostic tests of Normality, Heteroscedasticity, multicollinearity, stationarity, and model specification before applying regression models Data was analyzed using descriptive and inferential statistics with STATA software. The researcher adhered to ethical considerations of confidentiality, privacy and anonymity. The findings showed that adequacy of capital, liquidity, and management effectiveness together account for about 71.96% of the differences in financial stability among these cooperative societies (R-squared value of 0.7196). Specifically, having enough capital was linked to fewer non-performing loans (NPLs) (β=-0.3249614, p-value=0.000<0.05), higher liquidity was associated with a higher NPL ratio (β = 0.410056, p=0.003<0.05), and better management led to fewer NPLs (β=-0.0710747, p-value=0.002<0.05). The operating environment was found to significantly affect how firm characteristics influence financial stability. However, the level of competition among these entities only partly explained the relationship between firm characteristics and financial stability. In view of the findings, it is recommended that regulatory authorities in Kenya should take a proactive stance in establishing and enforcing robust capital adequacy standards for these institutions. The study findings highlight the critical role of capital adequacy in ensuring the financial stability of these cooperative societies. In addition, higher levels of capital adequacy and improved management efficiency are associated with reduced NPLs ratio among SACCOs in Kenya, hence improved financial stability. The study thus recommends that the managements of these financial institutions should consider exploring opportunities to strengthen their capital adequacy ratio through prudent financial management and strategic partnerships and strive to improve on their management efficiency. Additionally, SACCOs in Kenya should observe liquidity management guidelines by SASRA and maintain an optimal balance between liquidity and lending activities.
Demographic factors and income tax compliance among small and medium enterprises operated as sole proprietorship businesses in Soroti district, Uganda
(Kenyatta University, 2023-06) Otai, Isaac Peter
Investment Incentives and Effective Corporate Tax Rate for Manufacturing Firms in Kenya
(Kenyatta University, 2024-04) Nganyi, Muyela Silas
Effective corporate tax rate is a financial policy subject of interest to firms, policy makers and researchers. The main problem is how to reduce it since it measures real level of tax burden at firm level. The Government of Kenya has implemented various investment incentives aimed at lowering effective corporate tax rate so as to influence investments, facilitate capital formation, increase productivity and grow manufacturing firms. However, effective corporate tax rate in Kenya is still a problem averaging 31.3 percent for the last 10 years and has not been declining towards zero as recommended by the World Bank. Such high effective corporate tax rate militates against desired competitive corporate environment for the manufacturing sector. The sector has deteriorated to 7.4 percent contribution to gross domestic product which is less than 15 percent as envisaged in Kenya Vision 2030. This undesirable phenomenon therefore prompted the design of this study. The general objective of the study was to determine the effect of investment incentives on effective corporate tax rate for manufacturing firms in Kenya. The specific objectives were to determine the effect of profit based incentive on effective corporate tax rate; establish the effect of capital investment incentive on effective corporate tax rate; establish the effect of custom duty incentive on effective corporate tax rate; determine the intervening effect of corporate performance on the relationship between investment incentives and effective corporate tax rate; and evaluate the moderating effect of inflation on the relationship between investment incentives and effective corporate tax rate for manufacturing firms in Kenya. The theories underpinning this study were optimal corporate taxation, political power, neoclassical investment and inflation tax. The study adopted positivist philosophy and longitudinal research design. The target population was 1,092 firms registered with Kenya Association of Manufacturers. Stratified random sample of 278 firms provided secondary data for the period 2010 to 2020. Descriptive statistics were used to show attributes, quantify and describe the basic characteristics of the study variables. Inferential statistics concentrated on diagnostic tests, panel regression and test of hypothesis. The diagnostic tests focused multicollinearity, normality, homoscedasticity, linearity, stationarity, autocorrelation and model specification. The direct, intervening and moderating effect models were analysed to establish the parametric significance of the variables at level of 5 percent. Forms for data presentation were textual, tabular, graphical and charts. This study adhered to ethical standards at all stages. The findings have established that investment incentives had negative statistically significant effect on effective corporate tax rate for manufacturing firms in Kenya. The results showed that corporate performance had intervening effect while inflation had moderating effect on the relationship between investment incentives and effective corporate tax rate. The study has made some recommendations which are corporate executives should make effective corporate tax rate as part of outcome variable in the financial modelling and should develop corporate tax strategy. In addition, the National Treasury should develop a consolidated Fiscal Incentives Policy and Act; reform and implement investment incentives framework; design an appropriate profit based incentive programme as part of fiscal policy instrument; design fiscal policy that has capital investment incentive so as to provide tax advantage to manufacturing firms; design and implement robust strategic custom duty incentive policy tailored for manufacturing sector; develop a differentiated corporate tax framework; and develop and implement corporate tax-inflation adjustment framework to be part of tax system in Kenya. The study has added to finance knowledge that fiscal policy affects corporate operations. However, there is need for further investigation on other possible investment incentives that were not covered in this study.
Firm Characteristics, Inflation, Revenue Efficiency and Financial Stability of Insurance Firms in Kenya
(Kenyatta University, 2024-02) Ritho, Bonface Mugo
The insurance industry plays a crucial role in fostering the ongoing growth and prosperity of the economy. The insurance sector is accountable for ensuring the ongoing survival of businesses, mitigating the risk associated with financial losses, and striving to eliminate uncertainty for investors. Although the insurance sector serves a vital role, companies within this industry have been facing challenges in preserving their financial soundness. The insurance industry has experienced significant fluctuations in profitability, leading to the placement of several companies under receivership or even their closure. The primary objective of this research study was to evaluate the effect of firm characteristics on the financial performance of Kenyan insurance firms. Additionally, the study assessed inflation as a moderating factor in these relationships, and how the efficiency in generating revenue mediates the link between corporate characteristics and financial stability. This study was supported by a number of theoretical models, such as the Theory of Distress by Wreckers, Capital Buffer Theory, the Pecking Order Hypothesis, Gibrat's Law, Trade-off Hypothesis, Economic Efficiency Theory, Price Theory, and the Resource-Based View Theory. The study employed an explanatory research design and adopted a positivist philosophical approach. The study focused on a specific group of insurance firms, namely the 46 companies that possessed IRA licenses and were actively functioning between 2014 and 2021. The research thesis employed the census approach to examine all 46 insurance firms in Kenya. The research thesis was based on secondary data. Before conducting the inferential analysis, many tests were performed, such as multicollinearity, normality, autocorrelation, homoscedasticity, stationarity, and model definition. The research outcomes were represented using tables, figures, and graphs. The study complied with research ethical norms. The study findings revealed that the use of leverage has a considerable and adverse effect on the financial viability of insurance companies in Kenya. In contrast, the size of the firm had a notable and favourable impact on the financial stability of these companies. The study found that the loss ratio had a strong negative effect on the financial stability of insurance companies in Kenya, while capital adequacy had a notable beneficial impact on their financial stability. The study findings showed that the relationship between firm characteristics and the financial stability of Kenyan insurance companies is not significantly impacted by inflation. Moreover, it is impossible to dispute the idea that revenue efficiency plays no discernible role as a mediator in the connection between these companies' financial stability and their organizational characteristics. Consequently, the study recommends that general insurers in Kenya should reduce their reliance on borrowed funds, raise the scale of their operations, effectively control their loss ratio, and bolster their capital sufficiency in order to improve their financial stability. Nevertheless, it is crucial for them to practice prudence while utilizing leverage, since an excessive dependence on it may endanger their long-term viability. Kenya should also be advised to conform to the standards of the Solvency II framework.
Firm Characteristics and Liquidity of Microfinance Banks in Kenya
(Kenyatta University, 2023) Kiio, Joseph Munyao; Lucy Wamugo; Job Omagwa
The dynamism of the microfinance sector has benefited microfinance banks, resulting in significant transformation in the number of users served as well as the diversity of products and services offered. However, numerous microfinance banks have ended up with a liquidity ratio that is much lower than the required limit. Consequently, MFB deposits are dwindling, loan books are reducing, and profits are declining, all of which have an impact on MFBs' intermediation role. Thus, the main objective of this research was to examine how the characteristics of microfinance banks in Kenya influence their liquidity. In particular, the study aimed to investigate the impact of microfinance bank size, management effectiveness, capital adequacy and asset quality on the liquidity of these institutions. Additionally, the study aimed to determine whether bank competitiveness moderates the relationship between firm characteristics and liquidity in microfinance banks in Kenya. The Efficient Structure Theory, Capital Buffer Theory, Market Power Theory and Preference theory of Liquidity informed the study. The study adopted a positivism philosophy and Causal research design. The study's target population was the 13 Microfinance Banks in Kenya that were active between 2012 and 2018. This research used a census method, focusing on all 13 MFBs in Kenya. Secondary data from Central Bank supervisory reports and published financial statements were used in the study. Using Stata software version 14, data was analyzed using descriptive analysis and panel regression analysis. The hypotheses were tested at the 0.05 level of significance. The study findings indicate that microfinance bank size had a negative and significant effect on liquidity. Microfinance management efficiency had positive and insignificant effect on liquidity. Capital adequacy was found to have a negative and significant effect on liquidity while Asset quality had a positive and significant effect on liquidity of microfinance banks in Kenya. The finding further indicated that Bank Competitiveness had a significant moderating effect on microfinance bank size and liquidity. Bank competitiveness did not have a significant moderating effect on management efficiency, asset quality, capital adequacy and liquidity of microfinance banks in Kenya. The study found that some of the firm characteristics have a significant effect while others had insignificant effect. Consequently, the study recommends that microfinance bank managers can effectively manage liquidity by collectively focusing on bank size and take note of all changes that may influence the liquidity levels of the banks. This will let managers of microfinance banks fully anticipate changes or fluctuations in total assets, which may have an impact on these banks' liquidity and carefully monitoring changes in their assets, microfinance bank managers can anticipate potential liquidity issues and take proactive steps to mitigate them, such as selling off assets. Expanding investment opportunities can also help to protect microfinance banks from fluctuations in liquidity by diversifying their asset base. Policy makers and regulators should implement policies to ensure that microfinance banks maintain adequate levels of capital to support their operations. Microfinance bank managers must carefully balance the demand for loans with the need to maintain highquality loan portfolios that do not result in excessive losses. Overall, effective monitoring mechanisms and appropriate interest rate policies are essential for protecting the interests of clients and ensuring the stability and sustainability of the microfinance-banking sector in Kenya.
Financing Practices and Access to Financial Services among Small and Medium Enterprises in Kenya
(Kenyatta University, 2022) Kiring’a, Simiyu Edward; Fredrick W.S.Ndede; Argan O. Wekesa
Policy makers and scholars acknowledge the significance of small and medium enterprises in stirring the economic growth and development in developing and developed economies. In spite of the generally fast pace by which access to financial services for small and medium enterprises is being established, significant segments of the small and medium enterprises sector do not yet benefit from the expansion. Access to financial services by small and medium enterprises from financial institutions has been decling, falling from 27% in the year 2013 to 23.4 % in the year 2015 then dropped to 17% in year 2016 and then by 2017 the success rate was only 34%. Empirical studies has failed to yield consensus on the effect of financing practices variables; relationship lending, asset based lending and financial statement lending on access to financial services. This study was therefore undertaken to investigate the effect of financing practices on access to financial services by small and medium enterprises in Kenya. The objectives of the study were; to establish the effect of relationship lending, asset based lending and financial statement lending on access to financial services by small and medium enterprises in Kenya. The study further sought to establish the mediating effect of financial literacy and moderating effect of credit information sharing on the relationship between financing practices and access to financial services. The study was based on credit rationing theory, information asymmetry theory, pecking order theory as well as financial intermediation theory. The philosophical foundation of the study was positivist. The study utilised explanatory research design. The target population comprised 4,253 small and medium enterprises in Kenya. A sample size of 366 SMEs was utilised by the study. The study adopted multistage sampling technique to obtain the SMEs respondents. Primary data was employed and acquired through semi structured questionnaires. Pilot testing was done on 37 small and medium enterprises owners. Validity of the research instruments was ensured through face and content validity. Cronbach’s Alpha with a coefficient of above 0.7 was engaged to test reliability which was considered acceptable. Diagnostic tests like Shapiro-Wilk test was used for normality test. Variance inflation factor was used to test multicollinearity and Levene test as a test for heteroscedasticity. Data was analysed using descriptive and inferential statistics. Stata software version 17 and Heckman two step selection model were applied in analysis of data. Hypotheses were tested at 95% confidence interval for acceptance or rejection. The study findings showed that relationship lending and financial statement lending had a positive and significant effect on access to financial services among small and medium enterprises in Kenya. Asset-based lending was found to have a negative and insignificant effect on access to financial services among small and medium enterprises in Kenya. The study established that financial literacy had a significant mediating effect on the relationship between financing practices and access to financial services by small and medium enterprises in Kenya. The results established that credit information sharing had insignificant moderating effect on the relationship between financing practices and access to financial services among the small and medium enterprises in Kenya. The study concluded that financing practices play a critical role in access to financial services by small and medium enterprises in Kenya. The study recommends that small and medium enterprises owners should strive to meet the terms and conditions provided by lending institutions in their various financing practices while management of lending institution should adopt financing practices favourable to small and medium enterprises to increase their access to financial services.
Investment Decisions and Financial Performance of Nonfinancial Firms Listed at the Nairobi Securities Exchange,Kenya
(Kenyatta University, 2022) Maranga, Dennis Osoro; Ambrose Jagongo; Jeremiah Koori
The expectations of any stakeholder in a firm at the end of a quarter or a financial year is to earn dividends. However, this may not always be the case, since the firm may occasionally post losses. Previous endeavors to boost the financial performance of non-financial firms has been retarded by unsound Investment decisions reached upon by their management. However, other Studies that have been conducted previously portray that practicing prudent Investment decisions has reported an increase in their Financial Performance. Therefore, this research study evaluated the effect of Investment decisions on the Financial Performance of these firms. The specific objectives of this research study were: to evaluate the effect of Expansion decisions, Replacement decisions and Renewal decisions on Financial Performance of listed non-financial firms at the NSE; to establish the effect of firm size and financial leverage as a moderating and a mediating variables respectively on the relationship between Investment decisions and Financial Performance of these firms. The main theory underpinning this research study was the agency theory, supported by the Q theory of investments, accelerator theory of investments, financial constraint theory and the arbitrage pricing theory. This research study involved a census of 30 listed non-financial firms at the NSE as at December, 2018. This research adapted an explanatory non-experimental research design with the main source of data for the study being secondary panel data. A positivism research philosophy and explanatory research design was used and the data was extracted from the Nairobi Securities Exchange and Capital markets authority annual reports by use of document guide review, covering a 6-year period spanning the years 2013 to 2018. This research study analyzed data using descriptive statistics and regression analysis. Diagnostic tests conducted indicated the absence of multicollinearity. The variables were also found not to have a unit root with a normal distribution. The data indicated presence of homoscedasticity and autocorrelation. Model Specification Test was conducted to determine the suitability of either fixed or random effect model. Random effect model was found to be the suitable model for the study. The presence of autocorrelation necessitated the need to run a Feasible Generalized least square regression. It was concluded from the regression results that Expansion decisions had a negative and non-significant effect on return on assets ratio, market share price to book share price ratio and fixed assets turnover ratio. Replacement decisions had a negative and non-significant effect on the return on assets ratio and fixed assets turnover ratio models respectively; However, Replacement decisions had a negative and significant effect on the market share price to book share price ratio; Renewal decisions had a negative and significant effect on the return on assets model. However, Renewal decisions had a negative and non-significant effect on the market share price to book share price ratio and fixed assets turnover ratio, respectively of these firms. Firm size and Financial Leverage did not moderate and mediate respectively the relationship between Investment decisions and the nonfinancial firms’ financial performance. It is therefore recommended that, by evaluating the Expansion Decision of firms, the lenders can carry out a precautionary move against the possibilities of lending to firms whose return on new fixed assets forecast is not promising. By assessing the behavior of the market share price to book share price ratio and the fixed to asset turnover ratio, the investors can be able to make timely Replacement and Renewal decisions. Various researchers are called upon to research on Investment decisions and Financial Performance of non-listed non-financial firms, small and medium firms and financial firms.
Financial Innovations and Financial Performance of Microfinance Banks in Kenya
(2022) Odongo, Charles Omwanza; Ambrose O.Jagongo; Fredrick W.S. Ndede
The microfinance banks in Kenya have experienced a fluctuating and mixed performance between 2014 and 2020. For example, the financial performance measured in terms of pre-tax profits and return on assets was 1,002 million shillings and two percent in 2014 respectively. Further in 2020, the banks recorded a pre-tax loss of 2,240 million shillings and a return on assets of negative three percent. This presented a threat to their financial soundness, efficiency, stability, and sustainability, which has raised concern among financial scholars, regulators, and practitioners. Firms' financial performance has long been associated with financial innovations. Nonetheless, the available empirical literature failed to provide a consensus on the effects of financial innovations such as product innovations, process innovations, and institutional innovations on financial performance. In view of this, the current study assessed the effect of financial innovations on the financial performance of Kenyan microfinance banks for the period 2014-2020. The specific objectives were to examine the effect of product innovations, process innovations, and institutional innovations on the financial performance of microfinance banks in Kenya. In addition, the study determined the moderating effect of the regulatory framework and the mediating effect of competitiveness on the relationship between financial innovations and financial performance. The study was guided by financial intermediation, constraint-induced innovation, transaction cost innovation, regulation innovation theories, and Merton’s Market theories of innovation. The positivism research paradigm was employed. The assessment was guided by a descriptive research design. The assessment targeted all the 14 microfinance banks registered by the Central Bank of Kenya. A census was carried out and a document review guide was used to collect secondary data from the financial records of these banks. Means, standard deviations, median, maximum, minimum, skewness, and kurtosis were used for purposes of descriptive analysis while panel multiple regression and correlation were used for inferential analysis. The study found and concluded that financial innovations positively and significantly affect the financial performance of microfinance banks. Specifically, product innovations and process innovations have significant statistically positive effects while institutional innovations have no statistically significant effect on the financial performance of microfinance banks in Kenya. The study further established that the regulatory framework moderated the relationship between financial innovations and financial performance. The research also established that competitiveness mediated the relationship between financial innovations and the financial performance of microfinance banks. The study concluded that financial innovations enhance the financial performance of microfinance banks. Consequently, the study recommended that the Central bank of Kenya reward innovative banks through tax reliefs and strengthen its regulation and oversight while the management should focus on product differentiation strategy, aggressive advertising, and research and development to foresee new and innovative ideas. The study also recommends that microfinance banks should enhance their competitiveness by increasing their market shares to improve their financial performance.
Basel Accord Requirements and Financial Performance of Commercial Banks in Kenya
(Kenyatta University, 2022) Wanjiru, Mathina Ruth; Ambrose Jagongo; Lucy Wamugo
An efficient, stable and well-functioning banking system contributes to the economic growth of a country. However, the decline in financial performance of commercial banks in Kenya based on average return on assets is of high concern among various stakeholders, that is, the average return on assets was reducing over the period of study, 4.7% in 2013, 3.4% in 2014, 2.9% in 2015, 3.3% in 2016, 2.7% in 2017, 2.7% in 2018, 2.6% in 2019 and 1.7% in 2020 despite the introduction of banking regulations in regard to capital, supervision and market discipline by the central bank of Kenya. Basel II is the second Basel accord requirements and is based on three main pillars including capital, supervisory review and market discipline. It is therefore vital for banking institutions to understand the linkage between Basel accord requirements and financial performance in order to enhance financial performance in the long run. The general objective of the study was to investigate the effect of Basel accord requirements on financial performance of commercial banks in Kenya. Specifically, the study aimed to determine the effect of capital, supervisory review and market discipline on financial performance of commercial banks in Kenya. The study further sought to establish the moderating effect of market share on the relationship between Basel accord requirements and financial performance of commercial banks in Kenya. The study was founded on asymmetry information theory, buffer theory of capital, relative market power hypothesis and agency theory. Positivism research philosophy and casual research design were employed. The target population comprised of forty-three commercial banks from which a sample of thirty-eight commercial banks was obtained. Commercial banks which were actively operating and not under statutory management during the period of study were selected. Thus, the study used purposive sampling technique. Data for the period between 2013-2020 was extracted from the bank supervision annual reports and individual bank’s published annual reports using document review guide (Appendix I). Data analysis involved descriptive statistics (maximum and minimum values, standard deviation and mean) and inferential analysis (panel regression and correlation analysis). The study conducted panel unit root test, multicollinearity test, normality test, heteroscedasticity test and autocorrelation test to avoid spurious results. The 5% significance level was used to test the research hypotheses. Correlation results show that supervisory review, market discipline and market share were positively and significantly correlated with financial performance of commercial banks in Kenya while capital had a positive insignificant correlation with financial performance. The panel regression findings showed that market discipline had a positive insignificant effect on financial performance of commercial banks in Kenya as measured by return on assets while capital and supervisory review had a positive significant effect on financial performance of commercial banks in Kenya. Market share had a negative significant moderating effect on the relationship between capital and return on assets of commercial banks in Kenya. Market share had a negative insignificant moderating effect on the relationship between supervisory review, market discipline and financial performance of commercial banks in Kenya. The conclusion of the study was that Basel accord requirements including capital, supervisory review and market discipline jointly explains the variation in financial performance of commercial banks in Kenya. Further, increase in capital and supervisory review enhances financial performance. The study thus recommends that the central bank of Kenya and other regulatory bodies like capital market authority should design banking policies for implementing Basel accord requirements and enhancing financial performance of commercial banks in Kenya.
Fund Characteristics and Performance of Unit Trusts in Kenya
(Kenyatta University, 2021) Namu, Nthimba Anderson; Jagongo Ambrose; Lucy Wamugo Mwangi
When investors take part in any investment, increasing their wealth is the main objective. The objective is achieved when there is increase in share prices. The performance of unit trusts in Kenya however, has been poor compared to the counterparts in the rest of the world. The poor performance is a discouragement to individual and corporate investors in addition to affecting the realisation of financial stability according to the Kenya vision 2030. Empirical literature from developed and emerging markets posits that fund characteristics explain the unit trust funds performance. There is limited empirical literature in Kenya explaining the effects of fund characteristics on the performance of unit trust funds. The study therefore investigated the effects of fund characteristics on the performance of unit trust funds in Kenya. The specific objectives of the study were to: determine the effect of operating expenses on performance of unit trust funds in Kenya; the effect of fund size on performance of unit trust funds in Kenya: the effect of systematic risk on performance of unit trust funds in Kenya and the effect of unsystematic risk on performance of unit trust funds in Kenya. The study also sought to establish the moderating effect of inflation on the relationship between operating expenses, fund size, systematic risk, unsystematic risk and performance of unit trust funds in Kenya. The underpinning theories of the study were modern portfolio theory, arbitrage pricing theory, capital asset pricing model and Fama and French model. Positivism philosophy and explanatory research design and were adopted in the study. The population comprised 16 unit trusts with 99 equity funds, 107 money market funds, 85 bond funds and 100 balanced funds in Kenya as at the end of the year 2017. The study used a census approach. Secondary data was collected from the audited financial statement of respective unit trusts for the period 2005 to 2017 using a data collection schedule. Descriptive analysis done included the mean and standard deviation. Inferential statistics which included panel regression was also performed aided by e-views version 9. Diagnostic tests conducted included normality, heteroskedasticity, multicollinearity, stationarity and model specification. The study upheld issues relating to the ethical conduct of research by seeking permission from relevant authorities before collecting data. The study found that, operating expenses have a significant negative effect on performance in equity fund and money market fund and a significant positive effect on performance in bond fund and balanced fund. On fund size, the study found a significant positive effect on performance in all funds. Further, the study found systematic risk to have insignificant effect on performance in bond fund and balanced fund and significant effect on performance in equity fund and money market fund. In the unsystematic risk, the study found a significant effect on performance in the equity fund and money market fund. Besides, the study also found inflation rate to have a significant moderating effect on the relationship between fund characteristics and performance of unit trust funds in Kenya. The study concluded that: increase in operating expenses decreases performance; increase in fund size increases performance; increase in systematic risk increases performance and decrease in unsystematic risk increases performance. The study contributes to methodology, finance theory and empirical literature. The recommendations of the study the regulator should come up with a threshold for operating expenses within which unit trusts can charge based on various funds. There should also be policies regulating the amount of investment to be made for each fund in order to capitalise on the returns. The limitations underlined included: inadequate empirical evidence in Kenya; nonexistence of a unified ordering of accounting items.
Capital Market Reforms and Microstructure Performance of the Nairobi Securities Exchange, Kenya
(Kenyatta University, 2021) Owino, Jennifer A.; Ambrose Jagongo; Perez A. Onono
The late nineties and early 2000s was an era of extensive restructurings which saw a series of reforms taking place in most emerging markets. The Kenyan Government in a bid to match the efforts of other emerging economies embarked on revitalizing the financial sector with the aim of promoting the growth of the capital market. The huge investment in reforms aimed at improving the microstructure performance of the securities market and to consequently eliminate the problems facing the Nairobi Securities Exchange. Despite undertaking the reforms, the stock market still experiences a number of challenges such as low listing, stock prices volatility, illiquid stock market, among others. This study aimed at establishing how capital market reforms have affected the microstructure performance of the Nairobi Securities Exchange, in terms of efficiency, volatility, and liquidity, specifically to investigate the effect of entry of foreign investors, demutualization of the stock market, and dematerialization of securities on the microstructure performance of the stock market, likewise to establish the moderating effect of market size and time on the relationship between the dependent and independent variables. From existing literature, it is not clear whether undertaking reforms in the capital markets were beneficial or not. Different studies have produced mixed results with some stock markets reporting positive results and others negative. Furthermore, some of the most recently undertaken reforms in the Nairobi Securities Exchange have not been explored and therefore had to be given adequate attention. This study which employed an explanatory research design was anchored on capital market efficiency theory, market microstructure theory, liquidity and agency theories. A census of all the 63 listed companies was used. Annual Gross Domestic Product values, number of Central Depository System accounts opened, weekly closing of share prices and the market index for the period 2004-2017 were used as the data for the study. Abnormal returns, standard deviation, turnover ratio as well as market capitalization ratio were also determined. A multiple regression analysis was performed to establish how reforms have affected the microstructure performance of the securities exchange. The study found that entry of foreign investors into the Nairobi Securities Exchange did not have a significant effect on microstructure performance of the securities market. The study also established that demutualization of the Nairobi Securities Exchange influenced stock market liquidity, efficiency, and the overall market microstructure performance. However, the two measures of demutualization were found to influence the performance in opposite directions. Whereas an increase in ownership concentration improved liquidity, efficiency and the overall market microstructure of the NSE. An increase in ownership composition led to a decrease in the performance of the NSE. Dematerialization of securities achieved its desired results as it improved liquidity, volatility, efficiency as well as the overall microstructure performance of the bourse. The study also found that although the size of the market had no significant effect on the relationship between capital market reforms and microstructure performance of the Nairobi Securities Exchange the passage of time was important as it influenced the relationship between the study variables. The study therefore recommends that the Capital Market Authority should relax listing requirements to encourage more firms to be listed in Nairobi Securities Exchange as well as encourage public participation in the stock market. Additionally, since dematerialization is just a precursor to automation, the securities exchanges that are not fully automated should ensure that they go the full course to achieve the desired results
Effect of Business Succession on Performance in Kisumu County, Kenya
(Kenyatta University, 2021) Maende, Chrispen B.O.H.; Jagongo Ambrose Ouma; Paul P.W. Achola
The economic landscape of most nations, Kenya included, remains dominated by small and medium businesses which include family businesses. The importance of such businesses cannot be overemphasized, economically and socially. However, lack of business longevity is a cause for concern. Succession planning is the process of identifying and preparing suitable employees through mentoring, training and job rotation, to replace key players within an organization as those key players leave their positions for whatever reasons such as retirement, advancement and attrition. A few businesses survive to the second generation and even fewer make it beyond the third generation. Currently, there are a few family owned businesses in Kenya that have survived to the third and fourth generation. The literatures about family businesses suggest that there are a number of family businesses that fail in transitioning from the first generation to the second generation. Family businesses lack a practical understanding of succession planning resulting in the implementation of weak succession plans. The specific objectives of the study were to establish the relationship between business succession process on business performance in Kisumu Central Business District; to evaluate the relationship between handing over procedures of business on business performance in Kisumu Central Business District analyze the relationship between the demographic characteristics influence on business performance in Kisumu Central Business District; to examine the moderating effect of external factors on the relationship between business succession process on business performance in the Kisumu Central Business District. The research design was descriptive survey, data were collected by using a questionnaire through drop and pick method. Target population of 211 (two hundred and eleven) businesses (see appendix II), which were businesses in manufacturing, service, wholesaling and retailing industries. Testing the questionnaire for reliability and validity was done. The unit of analysis comprised of manufacturers, wholesalers, retailers and service firms. These findings revealed that there is a significant positive relationship between business succession processes on performance of businesses in Kisumu Central Business District. Marital status and experience were found to have significantly affected the performance of businesses in Kisumu Central Business District while age bracket and education had insignificant effect on business performance. The findings implied that in most businesses, successful and smooth business succession process enhanced its performance. Procedures of business succession significantly affected the performance of retail business. Educated business owners or proprietors were more likely to have high performing retail business than less educated colleagues. External factors (Legal Structure and Economic Factors) have a significant moderating effect on the relationship between business succession process and performance of retail business. The study concluded that businesses that intend to survive beyond their founders must have a smooth succession process. Smooth change of leadership, smooth transfers of ownership and smooth transfer of control ensure that the performance of business is not significantly affected. The study recommended that founders/owners of the businesses should start working on the succession process early enough to ensure the process is smooth and does not have negative impacts on business performance.
Capital Structure and Financial Performance of Small and Medium Scale Enterprises in Buganda Region, Uganda
(Kenyatta University, 2021) Mugisha, Henry; Job Omagwa; James Kilika
Small and Medium Scale Enterprises are known to be drivers of economic growth in Uganda. According to Uganda Investment Authority, the projected 5.5% economic growth by 2030 was dependent on a sustained performance trend of SMEs. However, SMEs in Uganda have witnessed a persistent performance decline of up to 70 % business failure rate in 2018 from 50% in 2004, a problem attributed to persistently low levels of profitability of the SMEs. Empirical literature on the capital structure-financial performance relationship has remained contradictory in both the developed and emerging economies alike. Hence, the study sought to determine the effect of short-term debt, long-term debt, and equity capital on the financial performance of SMEs in the Buganda region, Uganda as well as the moderating and mediating effects of market conditions and financial capacity respectively on the capital structure-financial performance relationship of SMEs in Buganda region, Uganda. The study was anchored on tradeoff, pecking order, stakeholder, as well as the free cash flow theories. Positivist research philosophy was adopted as well as the analytical cross-sectional research design. Using stratified random and purposive sampling techniques, a sample of 453 respondents was selected from a target population of 133,454 SMEs. Data was analyzed using descriptive statistics, correlation as well as multiple regressions analyses (using STATA version 14). Hypotheses were tested at a 0.05 level of significance. Normality, multicollinearity, and heteroskedasticity tests were conducted preceding multiple regression analysis. Research ethical issues were adhered to accordingly. The study found that short-term debt had a negative and significant effect on financial performance; long-term debt had a negative and insignificant effect on financial performance while Equity capital had a positive and significant effect on financial performance. Market conditions had a positive and significant moderating effect, while financial capacity indicated a significant and partial mediation effect in the relationship between capital structure and financial performance. The study recommends that SMEs should employ less amounts of debt and adopt more of own funds in their capital structure to improve profitability. Policymakers should design policies that promote mobilization of own capital for SMEs to discourage borrowing as well as enhancing their access to the equity markets. SMEs should assess the market conditions as well as maintain adequate liquidity and solvency levels in the process of deciding the capital structure mix of their operations to optimize the output of their financial investment.

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