Long Term Debts and Financial Performance of Manufacturing Firms Listed at Nairobi Securities Exchange, Kenya
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Date
2023
Authors
Mwiti, Mbaka Erastus
Gitagia, Francis
Journal Title
Journal ISSN
Volume Title
Publisher
IAJEF
Abstract
The manufacturing sector plays a pivotal role
in the economies of developing nations
inclusive of Kenya. This sector contributed
$7.99 billion in output translating to an
increase in GDP by 4.33% in the year 2021.
However, the sector showed a decline in
performance as indicated by declining trends
in return on assets. Empirical evidence show
that manufacturing sector have been unable to
raise their own finances to boost their
operations, and significantly rely on credit, an
aspect that is suspected to affect performance.
The study sought to determine the effect of
long term debts on financial performance of
manufacturing firms listed at Nairobi
Securities Exchange. The main theory that
anchored the study was pecking order theory.
The target population was the 9
manufacturing firms listed in the Nairobi
securities Exchange. A census of all the
manufacturing firms listed in the Nairobi
Securities Exchange was done. The study
used secondary data from financial reports as
published in the NSE handbook and Kenya
National Bureau of Statistics for the period
between 2017-2021. Panel regressions
analysis and Pearson’s product moment
correlation analysis were used for inferential
analysis while means and standard deviations
were used for purposes of descriptive
analysis. Feasible Generalized Least Square
(FGLS) regression results indicated that long
term debt (p=0.044, <0.05) had a statistically
significant positive effect on financial
performance. Correlation analysis indicated
that long term debt had a weak positive
correlation with financial performance. The
study concludes that firms with high long
term liabilities relative to total assets and low
current ratio show increased return on assets.
The study recommends that, companies
increase levels of debt to an optimal level
(both long-term) and reduce interest rate
coverage.
Description
Article
Keywords
Financial Performance, Long term debt
Citation
Mwiti, M. E., Gitagia, F. (2023). Long term debts and financial performance of manufacturing firms listed at Nairobi Securities Exchange, Kenya. International Academic Journal of Economics and Finance, 3(10), 267-278.