Determinants of lease financing decisions by non-financial firms quoted on Nairobi Securities Exchange, Kenya.
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Date
2014-03-06
Authors
Simiyu, Mungami Eddie
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Abstract
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.
Description
Department of Accounting and Finance, 2013