School of Business
Permanent URI for this collectionhttp://192.168.8.146:4000/handle/123456789/16
Browse
3 results
Search Results
Item The Relationship Between Diversification Strategies And Capital Structure Of Non-financial Firms Listed At The Nse(Kca University, 2017) Nzioka, Stella M.Diversification is one significant method that firms use to maintain their competitiveness and enhance their profitability. Firms seek diversification strategy in order to achieve value creation through economies of scope, financial economies, or market power. This study was carried out with an aim to analyze the effect of diversification strategies on capital structure of non-financial firms listed at NSE. The study focused specifically on analyzing the effect of product (related and unrelated) and geographical diversification on capital structure. An exploratory study design was used to collect data, with the population of the study being 64 firms listed in NSE. Out of the 64 firms, 47 non-financial firms were selected as the sample of the study. Data was collected from secondary sources, NSE and capital market authority. Data collected was analyzed through STATA by the use of panel data regression analysis. Co-efficient of determination and F- value was used to interpret the data with the results presented through frequency tables. The study found that related product diversification strategies and unrelated product diversification strategies have a positive and significant influence on capital structure decisions of non-financial firms listed at NSE. However, geographical diversification strategies had no significant influence on capital structure decisions of non-financial firms listed at NSE. Related diversification helps a company to expand to new products and markets but within the existing strategic capability. The study results show that debt is the most preferred form of financing in related product diversification strategies. Unrelated diversifiers have a better position to create financial synergies by transferring capital across different businesses and through operating various businesses with different risk profiles. The findings of this study show that debt is the most preferred form of financing in unrelated product diversification strategies. Geographical diversification boosts the worth of shareholders by taking advantage of specific assets and by accelerating functioning flexibility. This study recommends that firms can increase their market power through increasing their new products and markets, which can be financed though debt financing. In addition, the management of firms should strive towards having optimum capital structure by increasing their equity level and reducing dependence on debts so as to avoid being cash strapped and debt ridden. This is because, beside equity holders providing funding, they could be helpful by bringing in their business experiences, skills, and contacts to grow the business. This study also recommends that firms focus on geographic diversification as it has advantages such as lower cost of production, but it should not be financed through debt or equity.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 Effect Of Capital Structure On The Liquidity Of Deposits Taking Saccos In Kenya(KCA University, 2024) Mwiti, JasperThe effects and the existence of an optimal capital structure has remained a matter of academic debate since the capital structure irrelevance proposition by Modigliani and Miller in 1958. According to the SASRA’s SACCOs annual supervision report of 2022, deposits taking SACCOs in Kenya hold over 700 billion Kenya shillings in assets. This study sought to determine the effect of capital structure on the liquidity of deposit taking SACCOs in Kenya. The study used a descriptive research design to collect panel data from the published financial statements of deposit taking SACCOs in Kenya in relation to capital structure, in particular the long-term debt, equity and members non-withdrawable deposits. The study found out 59% of variations of liquidity levels of deposits taking SACCOs in Kenya can be explained by the long-term debt, share capital and the members’ non-withdrawable deposits in their capital structure. The study established that capital structure component of DT SACCOs in Kenya, namely; long-term debt, share capital and non-withdrawable deposits have an influence on the SACCO liquidity position. The study established that long-term debt has a positive and a significant effect on the liquidity risk of deposits taking SACCOs in Kenya. An increase in long-term debt will positively affect the SACCO liquidity level with 3.175 units. The study found out both the share capital and the non-withdrawable deposits also have a positive and significant effect on the liquidity levels of deposits taking SACCOs in Kenya, share capital (β= 1.122, p value <0.05), non-withdrawable deposits with (β= 3.011, p value <0.05). The study recommends to policy makers to develop a strict liquidity prudential guidelines mechanism to safeguard and limit the liquidity risk exposure of DT SACCOs and the need of the SACCOs’ management to continuously evaluate the cost of source of funds against the interest revenue generated from loans to members as lending is the core business of DT SACCOs in Kenya so as to manage their liquidity risk exposure. Consequentially with the noted study limitations, a future study on the capital structure on liquidity of non-deposit takin SACCOs should be carried as well as a survey of all the licensed deposits taking SACCOs in Kenya using a well-structured questionnaire to capture the primary data from the SACCOs’ management in regard to effect of capital structure on liquidity management.