Capital Structure and Financial Performance of Commercial State Corporations in Kenya
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Date
2023
Authors
Nyongesa, Edrine Mwajuma
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Commercial state corporations play essential role in enhancing public service delivery and meeting the needs of the people, as well as creation of employment opportunities. As such, various commercial state corporations have been getting capital through debt financing and equity capital. However, even after getting finances via these sources, commercial state corporations have been poorly performing as shown by decreasing profitability in the last five years. The general objective1of the1study was to1examine the1effect of capital1structure on the financial1performance of commercial state1corporations in1Kenya. Further, specific objectives1were to examine effect of short term debt on financial1performance of commercial1state corporations in1Kenya; to determine1effect of long term debt on financial1performance of commercial1state corporations in1Kenya; and to find out effect1of equity capital on financial performance of commercial1state corporations1in Kenya. This study was1anchored on1trade-off theory, agency theory and1Modigliani and Miller (MM) theory. An explanatory research design was1adopted during the study. Moreover, target population was 26 commercial1state corporations distributed in different parts of Kenya. Since target1population is small, census method was utilized therefore, the entire population was included during the study. Further, this research made use1of secondary panel data. The secondary data covering 10 years1from 2012 to 2021, was gathered from Office of Auditor General Website and individual companies annual reports. In data analysis, inferential and descriptive statistics were utilized and STATA version 14 was used in statistical1analysis. Further, descriptive1 statistics encompassed frequency1distributions, mean, percentages, variances and standard1 deviation. The inferential statistics were conducted by employing panel regression analysis. Additionally, the findings of the study were displayed in figures and tables. The study established that equity capital has positive1and also significant effect1on financial performance1of commercial state corporations in Kenya. In addition, short term debt has significant negative influence on Kenyan commercial state corporations’ financial1 performance. Further, long term1debt has1significant positive1effect on Kenya commercial state corporations’ financial performance. The study concludes that equity capital and long term debt have a positive effect on financial1performance of commercial1state corporations in1Kenya, but short term debt had a negative effect on financial1performance of commercial1state corporations in1Kenya. The study1recommends that management ought to utilize equity capital to fund their operations because equity owners are capable of consistently monitoring and exerting effect on managerial decisions therefore ensuring proper allocation and utilization of various resources. In addition, commercial state corporations must avoid short term debt as they are characterised by high interest rates. Also, the management of commercial state corporations should use long term debt to fund varied investments with longer paying periods.
Description
A Research Project Submitted to the School of Business, Economics and Tourism in Partial Fulfillment of the Requirements for an Award of a Master of Business Administration (Finance Option) of Kenyatta University
Keywords
Capital Structure, Financial Performance, Commercial State Corporations, Kenya