Amugada, Ballerine Shunza2025-07-312025-07-312025-06https://ir-library.ku.ac.ke/handle/123456789/30976A Research Project Submitted to the School of Business, Economics and Tourism in Partial Fulfillment of the Requirements for the Award of Masters of Business Administration (Finance Option) at the Kenyatta University, June 2025. Supervisor Lucy Wamugo MwangiAs of 2023, Kenya's manufacturing sector contributed only roughly 7.6% of the country's GDP, well below the 15% target, despite being recognized as a key pillar under the country's Vision 2030 and the Bottom-Up Economic Transformation Agenda. Declining profitability in several manufacturing firms listed on the Nairobi Securities Exchange, including Mumias Sugar Company and Eveready East Africa, has discouraged investors from investing in the industry and negatively impacted Kenya's economic growth. The study evaluated the effect of debt financing on profitability of Nairobi Securities Exchange listed manufacturing companies in Kenya. The study’s specific objectives entailed investigating the effects of long-term debt, short-term debt, and debt tax shield on the profitability of manufacturing enterprises listed on the Nairobi Securities Exchange. The research was theoretically underpinned by the trade-off theory, agency theory, and Modigliani and Miller capital structure irrelevance theory. The study employed an explanatory research approach to assess the effect of debt financing on the profitability of the nine manufacturing companies listed at the Nairobi Securities Exchange. All nine of the manufacturing enterprises listed at the NSE were included using a census sampling technique. To test the hypothesis, secondary data covering the years 2010–2022 was taken from the firms’ financial reports and examined using Stata version 17. Panel regression analysis was used to examine how the variables behaved. Diagnostic tests carried out were the multicollinearity, Hausman, heteroskedasticity, autocorrelation, stationarity, and normality tests. Strict adherence to ethical considerations was observed, including obtaining authorization letters from Kenyatta University, and NACOSTI before initiating data collection. According to the study, short- and long-term debt have a negative and significant effect on the profitability of manufacturing companies listed on the NSE. Additionally, debt tax shield was discovered to have an inverse and insignificantly effect on profitability. Recommendations required financial managers to put in place strategies to reduce debts to ensure rise in net income, thus improving profitability of listed manufacturing companies. Furthermore, the companies should carefully consider their debt structure, balancing short-term and long-term obligations to optimize profitability while managing financial risk.enThesis