Determinants of Capital Structure Decision of listed Firms: a Comparative Study of Ghana and Nairobi Stock Market
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Date
2013-02-19
Authors
ANDZIE, TAHIR AHMED
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Abstract
Capital structure decision is crucial for any business organization because such decision
impacts on the firm's value and its ability to deal with its competitive environment. Finance
practitioners and Academicians alike have found it difficult to resolve the issue of
optimal capital structure in the perfect capital markets of the advanced economies as well
as in the imperfect capital markets, as in developing economies. The debate on the choice
of an optimal capital structure is therefore inconclusive from both theoretical and
empirical studies. This study sought to empirically investigate the key determinants of
capital structure decision of listed firms, a comparative study of Ghana Stock market and
Nairobi Stock market with the main aim of providing a comprehensive understanding of
the influence of firth specific factors such as firm size, asset structure, profitability, risk,
growth and corpor~i(tax, on capital structure decision of listed firms from an emerging
market perspective. The findings of the study is expected to be of great significance to
Finance Practitioners, Policy makers, Investors, Regulatory Authorities, students, future
researchers and the Academicians both in Ghana and Kenya. The study adopted a causal
study design. This design made use of panel data analysis model to establish the causal
relationship between the independent variables and the dependent variable. The study
population constitutes ninety (90) listed firms. Thirty five (35) listed on the GSE and fifty
five (55) on NSE. Purposive sampling technique was used to select the sample firms. The
sample size for this study is made up of fifty (50) non-financial, non-utility and nonmining
listed firms. Twenty (20) listed on GSE and thirty (30) listed on NSE. The study
relied on Secondary data sourced from annual audited financial statement of the listed
companies on Ghana and Nairobi Stock Exchange. The study employed quantitative data
analysis techniques. univariate, bivariate and multivariate data analysis was done using
descriptive statistics, Pearson correlation coefficient and linear panel regression analysis
respectively. Data analysis~-s~'ftware used was STATA version 11. The Result of the
study revealed that Growth opportunities, Firm size and Level of risk influence capital
structure of listed firms positively but insignificant in both Ghana and Nairobi Stock
market. Asset tangibility and Profitability were found to have significant negative effect
on capital structure decision of listed firms in both markets; whiles tax was found to have
a negative influence on capital structure, but insignificant the in the case of NSE listed
firms. This study contributes to the body of knowledge on firm specific factors and
capital structure relationship which is scanty from emerging markets perspective. Based
on the findings the study recommends that: policies should be formulated to make the
sale of bonds attractive to investors in Ghana and Kenya; To facilitate growth and
profitability, listed firm on GSE and NSE should employ long term debt instead of short
term debt; Investors must be oriented to understand firm characteristics from the financial
statement so as to enable them make an informed investment decisions. The study
conclude that the determinants of capital structure decision of listed firms on Ghana and
Nairobi Stock market generally conform to the predictions of the pecking order theory
and that no significant differences were found between the determinants of capital
structure decision oflisted firms on Ghana and Nairobi Stock markets.
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Description
Accounting and Finance
HG 4026 .A35
HG 4026 .A35