Relationship Of Macroeconomic Factors and Capital Structure of Non-Financial Firms Listed at The Nairobi Securities Exchange

Abstract

An investor’s analysis of a firm’s prospect starts with an analysis of the economy. In most instances the performance of a firm depends largely on the performance of the economy. This research extends literature on the relationship of macroeconomic factors and capital structure of Non-Financial firms listed at the Nairobi Securities Exchange. In particular, the study analyses the effect of Inflation rate, Interest rate, GDP growth rate and the capital structure of listed firms. The study uses Secondary data collected from companies annual financial statements obtained from the NSE handbooks. Further information was collected from the Capital Markets Authority, the Central Bank of Kenya and the Kenya National Bureau of Statistics. The research was carried out on 33 Non-Financial Firms listed at the Nairobi Securities Exchange. The Random effects model shows that inflation rate and Interest rate have a positive relationship while the GDP growth rate has a negative relationship to capital structure. Size of a firm as a mitigating variable in the study has a positive relationship to capital structure. The data collected was analyzed using the panel multiple regression analysis. The Research is expected to add up to the existing literature on the influence of macroeconomic variables on capital structure.