Determinants of lease financing decisions by non-financial firms quoted on Nairobi Securities Exchange, Kenya.
Simiyu, Mungami Eddie
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Access to finance remains a key issue for firms in emerging markets, Kenya included. 60 per cent of firms in Kenya consider access to finance as major barrier to growth. One of the solutions this problem is the use of lease fmance. However, access to lease finance is determined by various factors that this study investigated. The specific objectives' of the study were; to analyze the effect of company specific factors on leasing decisions corporate environment, assess the effect of corporate governance on leasing decisions and determine the effect of lease specific environment factors on leasing decisions by firms quoted on Nairobi Securities Exchange. Mann-whitney test, Pearson correlation and logit model were used find out the effect of share ownership structure; debt capacity; level of profitability; size; cash flow conservation; legal environment; accounting treatment; chief executive share ownership; institutional investor ratio; cross listing; liquidity; tobin q; cashflow; cost of funds; industrial type; effective tax; investment opportunities and growth; agency problem (Industry Factor), availability of secondary market; pricing, bankruptcy costs, risk sharing, access to capital market, regulatory environment, and judicial efficiency on lease financing decisions by non-financial firms quoted on the Nairobi Securities Exchange. The research design was descriptive. The study used triangulation approach where both secondary and primary data were collected. Secondary data were collected through a desk review of the financial statements of all nonfinancial companiesfor the period between 2004 to 2009, Primary data were collected using a questionnaire, in which both open-ended and closed-ended questions were administered to all 40 non-financial companies, The questionnaires were dropped and picked by the researcher and a trained research assistant. Univariate analysis was done using descriptive statistics, Mann-whitney tests and Chi-square test. Multivariate analysis was done using panel logit regression. The results indicated that cost of capital, financial distress, size, share ownership, management compensation, total debt ratio, chief executive share ownership were important in explaining lease decisions in the case of operating leases and cost of capital, size, performance, management compensation, chief executive share ownership were important for capital leasing decision. The results of the study indicated that just like in developed countries effective tax rate and size of the firms were important in making leasing decision. However, financial distress and leverage were not major consideration by firms in making leasing decision.