Capital Structure and Profitability of Commercial State Corporations in Kenya
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Date
2024-12
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AJSSE Journals
Abstract
Commercial state corporations play a crucial role in national growth and in building the state’s technical capabilities and capacities. In Kenya, many commercial state corporations have raised capital through debt financing and equity capital. However, despite obtaining funds from these sources, their performance has been suboptimal, as evidenced by decreasing profitability over the past five years. The general objective of this study was to investigate the effect of capital structure on the profitability of commercial state corporations in Kenya. The study was anchored in trade-off theory, agency theory, and the pecking order theory. Secondary data covering 10 years (2011-2021) was gathered from the Office of the Auditor General’s website and individual companies' annual reports, and past studies in the area were also reviewed. The study established that equity capital has a positive and significant effect on profitability (β = 0.904, p < 0.05) of commercial state corporations in Kenya. Additionally, short-term debt was found to have a significant negative influence on profitability (β = -0.737, p < 0.05), while long-term debt showed a significant positive effect on profitability (β = 0.402, p < 0.05). The study concludes that equity capital and long-term debt positively impact the profitability of commercial state corporations, while short-term debt negatively affects profitability. Based on these findings, the study recommends that management utilize equity capital to fund operations, as equity owners can consistently monitor and influence managerial decisions, ensuring the proper allocation and utilization of resources. Furthermore, commercial state corporations should avoid short-term debt due to its high-interest rates and should instead use long-term debt to fund investments with longer repayment periods.
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DRINE MWAJUMA NYONGESA, M. ., & AMBROSE O. JAGONGO, . J. (2024). CAPITAL STRUCTURE AND PROFITABILITY OF COMMERCIAL STATE CORPORATIONS IN KENYA. Academic Journal of Social Sciences and Education, 12(4). Retrieved from https://www.ajsse.org/index.php/1/article/view/293