Debt maturity, GDP growth rate, and financial performance of listed firms at the Nairobi securities exchange

Abstract

This study examined how capital structure and debt maturity affect the financial performance of companies listed on the Nairobi Securities Exchange, with GDP growth as a moderating factor. Using panel data from 49 firms covering 2019-2024, sourced from annual reports and Central Bank of Kenya GDP data, the research employed quantitative analysis, including panel regression modeling in STATA, grounded in Modigliani-Miller and Trade-Off theories. Secondary data collection from company financial statements and official government databases supported the analysis. The study consisted of 294 observations from 49 companies across six years. Based on the findings, the average long-term debt across the years was 20.95%. Long-term debt was found to have a negative but significant impact on financial performance (β = -0.1124; p < 0.05). The findings mean that the high costs associated with long-term debts are likely to minimize the income, resulting in lower financial performance. Equally, the average short-term debt was 6.39%. Short-term debt was found to have a positive and significant impact on financial performance (β = 0.0868; p < 0.05). Short-term debts were found to offer firms liquidity and the ability to engage in short-term investments, which would enhance financial performance. Debt maturity structure was measured by considering the ratio of short-term to long-term debt. The average debt ratio was 0.542, implying that the companies were more dependent on long-term than on short-term debts. The variable was also found to have a negative and significant impact on financial performance (β = -0.0946; p < 0.05). GDP growth rate was found to have a positive and significant impact on financial (β = 0.234; p < 0.05), implying that financial performance was likely to increase with an increase in GDP. The variable GDP growth rate was also found to have a significant moderating effect (p < 0.05). The study recommends that companies avoid overreliance on long-term debt.