School of Business
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Item Effect of Capital Structure on Financial Performance of Commercial Banks in Kenya(KCA University, 2016) Mutua, Dorcas K.The impact of capital structure on the value of the firm has been a puzzling issue in corporate finance since the capital structure “irrelevance” proposition introduced in 1958 by Modigliani and Miller. To date, determining the mix in the firm’s capital that will improve a firm’s value is a contentious topic in financial literature. This study evaluated the effect of capital structure on financial performance of commercial banks in Kenya by determining the effect of short term debt asset ratio, long term debt asset ratio, interbank borrowings and equity on financial performance. In evaluating the relationship between the variables, a descriptive research design was applied. The target population was all the 43 commercial banks in Kenya. A panel data model was used to analyze all data from 34 commercial banks that had been in operation over a study period of 10 years (2005 – 2014). The study period was appropriate as it covered various cycles in the Kenyan banking sector. The results of the study will be useful to all those interested in bank policy making. The study established that interbank borrowing and equity have significant positive effect on profitability. However short-term debt and long-term debt asset ratio do not have a significant effect on profitability. The following recommendations are made. First, since long term or short-term debt to asset ratios do not significantly affect profitability of commercial banks, the study recommends to bank managers to focus on finding a satisfactory debt level that satisfies regulations and focus on other variables that, may be critical in influencing profitability. Secondly, the study recommends bank managers to focus on improving the capital strengths of their banks by either rights issue, bonus issue of shares or through high retention of profits. Lastly, Bank managers should devise effective relationships with other banks so as to be able to access lending from them when needs arise.Item The effect of capital structure on profitability of non-financial firms listed at Nairobi security exchange(Kca University, 2016) Opungu, Jackson A.Good capital structures are critical for the survival of any business firms in any economic arrangement or set up. The current study’s purpose was to investigate the effect of capital structure on profitability of non-financial firms listed at Nairobi Stock Exchange (NSE). The study tested the null hypotheses that there is no relationship between short term debt-equity ratio, long term debt-equity ratio and equity on profitability of non-financial firms listed at NSE. The theoretical basis of the study was on agency theory, static trade off theory, pecking order theory and MM capital structure irrelevance theorem. Descriptive research design was applied in this research study. The study applied the epistemology philosophy based on positivist paradigm. The target population for this study was all the listed non-financial firms in the NSE as at 31st March 2015. Data for these 41 companies for five years (2010 – 2014) was used in the study. Secondary data applied in this study was collected from the audited financial statements of the companies, NSE and the Capital Markets Authority. Panel data regression (fixed effects) model was applied in analysis. Stata statistical software was utilized. The study findings indicate that short term debt equity ratio negatively and significantly affects ROA, ROE and ROCE. Long term debt equity ratio has a negative effect on return on assets and return on equity but has an insignificant effect on ROCE. Equity has a positive and significant relationship with ROE and ROCE but has an insignificant effect on ROA. The following recommendations are made. First, though short term debt is a source of quick liquidity for the firm during emergencies, they bring shocks and added riskiness to the firm and hence managers should apply these sources of financing with caution. Secondly, managers should establish the level of debt of debt to equity that is optimum for the firm and seek to achieve this optimum level. Firms should however, mostly rely on retained earnings for expansion and growth. Thirdly, the study recommends that managers in non-financial firms should effectively manage the amount of borrowed capital in the firms’ capital structure since high debt levels will mean more interest payments and thus cash outflows.Item Determinants Of the Capital Structure of Companies Listed on The Nairobi Securities Exchange(KCA University, 2015) Muhumed, Shakir H.The increasing trend of abrupt corporate failures both locally and globally are incensing growing concern among shareholders and other stakeholders alike. This has made these stakeholders to question the performance of their firms. Capital structure is arguably the core of modern corporate finance. This study sought to examine the determinants of capital structure of firms listed on the NSE. While the specific objectives were: To determine the effect of profitability on capital structure for companies listed in NSE, to establish the effect of growth opportunity on capital structure for companies listed in NSE, to establish the effect of firm size on capital structure for companies listed in NSE, to evaluate the effect of firm age on capital structure for companies listed in NSE, and to evaluate the effect of asset tangibility on capital structure for companies listed in NSE. The study reviewed trade off, pecking order and Modigliani and Miller theories that underpinned the study. Longitudinal research design was used. The study was a census study of all the firms listed in the NSE between 2003 and 2013. Secondary data from certified financial records of the firms was extracted and both descriptive and inferential statistics used. The data was both cross sectional and time series in nature and therefore panel data model was used. The study results established that firm profitability, growth opportunity, firm size, firm age and asset tangibility all had no significant effect on total debt of firms listed in NSE in Kenya. In regard to equity levels, the study established that profitability and asset tangibility have a significant effect on equity to total assets ratio. However, the study reveals that that firm size, firm age and growth opportunity have no significant influence on equity to assets ratio. From the study results, recommendations were made to managers of firms to observe present and future profitability of their firms as it is deemed as a major determining factor in capital structure and hence in determining the cost of capital and value of the firm. Further managers should also ensure that they effectively manage their assets to enable the firm’s assets to remain of high quality so as to contribute in the firm’s earning power.