Capital Structure and Financial Performance of Investment Firms Listed In Nairobi Securities Exchange, Kenya
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Date
2024-06
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Kenyatta University
Abstract
Organizational financial performance is crucial, and all businesses should strive for the highest levels of financial performance. businesses engaged in globally competitive markets have demonstrated throughout time that profitability is not a given due to intense rivalry and the oligopolistic structure of such markets. Many NSE Listed companies have followed the same path of obtaining debts in the asset base, so with goal of increasing profitability. The raising of appropriate finances in these organization was also expected to aid the firms in their operations. Nevertheless, in the past, businesses with large loans in their shareholders’ wealth, such as Mumias Sugar Company, Home Africa, Transcentury, Kenya Airways, ARM Cement, and Uchumi Supermarkets have consistently accumulated massive losses and ended up finding themselves in severe credit crisis, owing lenders more than their total wealth. The investigation of the relationship between capital structure and financial performance of investment firms listed on the Nairobi Securities Exchange will be the study's primary goal. The research specific goals were to examine the impact of debt financing on the success of investment firms listed on the NSE, to examine the impression of financial leverage on those NSE firms' performance, and to determine the impression of retained earnings on those NSE firms' financial performance. The study was informed by the Modigliani and Miller Theorem, trade off theory, pecking order theory as well as liability management theory. This investigation used a made use of descriptive plan. The populace was the five (5) investment firms. The survey method was used to select all the five (5) NSE listed investment firms in Kenya. The data for this investigation came from CMA reports, printed articles, journals, and other pertinent resources found online and in libraries using secondary data collection approaches. The research used quantitative examination of the data. STATA was used in data analysis. Descriptive, trends and inferential was conducted. According to the model, capital structure accounts for 61.19 percent of the variance in financial performance. This indicates that capital structure was responsible for 61.19 percent of the variations in financial performance. Outcomes were a clear case that the debt finance resulted to decline in financial success of the investment firms. The outcomes were clear that the financial leverage was noteworthy impacted the financial success of the investment firms. The outcomes were clear that the retained earnings was noteworthy impacted the financial success of the investment firms. The study concluded that debt financing has a negative and significant impact on financial performance of listed investment firms in Kenya. Therefore an increase in debt led to poor financial performance of the listed investment firms in Kenya. Investment firms with little debt might generate higher returns on their assets. The study concluded that the mean D/E was 1.247 indicating that the investment firms listed in the NSE are well financed to cater for the short-term financial obligations. This is in line with the general consensus that debt-to equity ratio should not be above a level of 2.0. The debt to equity ratio shows the companies’ short-term financial health. The study concluded that retained earning has a negative and significant impact on financial performance of listed investment firms in Kenya. Therefore an increase in equity led to better financial performance of the listed investment firms in Kenya. The study also concludes that there was a general rise in net income. The policy makers at listed investment firms should develop policies and regulations that can guide debt management among listed investment firms. As the regulator, CMA needs to develop suitable policies on debt management among the listed investment firms.
Description
A Research Project Submitted to the School of Business, Economics and Tourism in Partial Fulfilment of the Requirements for the Award of the Master Degree in Business Administration (Finance) Kenyatta University, June, 2024
Supervisors:
1.Anthony Mugetha Irungu
2.