Capital Structure and Financial Performance of Microfinancial Institutions in Nairobi City County Kenya
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Date
2021
Authors
Odero, Rovinson Okinyi
Mutswenje, Vincent Shiundu
Journal Title
Journal ISSN
Volume Title
Publisher
IAJEF
Abstract
This research was intended to appraise
ramification of the capital system on
commercial return of micro-financial
institutions in Kenya's Nairobi City
County. The research was seeking to
resolve the following problem. What are
the capital structure features used by the
MFI? Is there a connection between the
composition of capital and the viability of
firms? If the business size has an impact
on earnings before tax? The study was
motivated by the following capital
structure theories, which are the theory of
Modigliani and Miller, standard theory, the
theory of net income method and the
theory of net operating income approach.
To define the independent variable, the
researcher used a descriptive analysis
design. To explicate sequel of predictor
variables on the responding variables,
explanatory research may also be used.
The target demographic of the research is
to be all 14 successful microfinance
companies as recognized by the Kenya
Microfinance Act as of 2020. The research
therefore represents a census survey with a
period of 5 years (from 2014-2018). The
study's research model consisted of the
independent variable debt ratio, the equity
ratio and the size of the company as a
moderating variable, determined by the
company's gross asset value, and the
following ratios as dependent variables:
return on equity. To analyze the results,
Stata will be used. There will be
descriptive and inferential statistics
execution. The gradation of correlation
allying to covariate parameter and
responding parameter used in the sample
will be defined by regression analysis. A
certain diagnostic result can be calculated
before the study is completed. Out-turn in
the form of tables and graphs will then be
displayed. The inferential statistics
revealed that equity financing has
statistical negligible sway on the financial
return of MFIs (p=0.155>0.05). Debt
financing was found to have a statistically
significant influence on financial
performance of MFIs (p=0.024<0.05), the
findings further showed that firm size
averaged at -0.0132. The findings show
however, firm size was not a significant
moderator (p=0.581>0.05) in this study.
The study suggested that with the
establishment of negative correlation
between debt financing and the financial
performance, in pursuit of higher profit
and better performance the firm
management can utilize debt financing by
taking the advantage of tax shield benefit,
another study was suggested to be done
using the same variables but now using the
Return on Asset as the contingent on
parameter. The study suggested the
occurrence of indistinguishable evaluation
in supplemental financial sphere such as
Saccos and Insurance companies’ further
study with involvement of other capital
structure rations was also suggested.
Description
Article
Keywords
Equity finance, Debt finance, Capital structure, financial performance
Citation
Odero, R. O., Mutswenje, V. S. (2021). Capital structure and financial performance of microfinancial institutions in Nairobi City County Kenya. International Academic Journal of Economics and Finance, 3(7), 308-328.