Lease Financing and Financial Performance of Manufacturing Firms Listed in the Nairobi Securities Exchange, Kenya
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Date
2025-08
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Kenyatta University
Abstract
Manufacturing firms listed at Nairobi securities exchange have experienced variations in their financial performance in the past with some firms facing declines and others stagnating. This has raised concerns among various stakeholders including the Government, potential investors and even the shareholders. Financial managers of these firms always investigate maximizing shareholders’ wealth and the best way to do this is by making profits via various techniques among them being cost alleviations. Some firms in Kenya are considering and employing lease financing in a view to cutting down asset acquisition cost. The research opted to determine the effect of lease financing on the financial performance of the manufacturing firms listed at Nairobi securities exchange. The specific objectives of the research were to assess the effects of operating lease, finance lease and leverage financing on financial performance of manufacturing firms listed at Nairobi securities exchange, Kenya. The other specific objective was to determine the moderating effect of liquidity on the relationship between lease financing and financial performance. The study was anchored by four theories: Financial contracting theory, Walker’s theory of profit, trade-off theory and liquidity preference theory. Descriptive research design was employed, and all the eight listed manufacturing firms were studied. Secondary data from 2017 through to the year 2022 was used in this study. With the use of EVIEWS system, inferential statistics and descriptive statics were carried out, Descriptive statistics like mean and standard deviation and inferential analysis like correlation analysis and regression analysis were employed, further, diagnostic tests employed to test whether the model was relevant, and it depicted that the model was workable. Ethical consideration was adhered to by getting a research permit from NACOSTI to conduct the research. The study, with p-value 0.05 significance level, determined that both operating lease and leverage finance were statistically significant and with a positive effect while finance lease was statistically significant and with a negative effect on financial performance of the listed manufacturing firms. Liquidity was found not to have a moderating effect on the relationship between lease financing and financial performance. Therefore, all the research null hypotheses were rejected except for the fourth, where the researcher failed to reject. The study recommends that financial managers should employ operating lease and leverage financing given their significant positive effect on financial performance. Finance lease had a significant negative effect on financial performance and financial managers should avoid employing it. The researcher suggests more study be carried out on lease financing fields in different sectors as its potential seems not to have been exploited.