Effect Of Financing Strategies On Financial Performance Of Real Estate Firms In Kenya

Abstract

With the ballooning state of real estate companies and entrance of new financing strategies in Kenya, it is vital to investigate the role of some of the newly adopted financing strategies. Besides, volatility of returns for real estate companies appears high with some collapsing in the last decade. This study examined the relationship between financing strategies and financial performance of real estate firms in Kenya. The financing strategies considered included: private equity, joint venture, mortgage and retained earnings. The study also examined the moderating effect of firm size on the relationship between financing strategies and financial performance. The study utilised secondary data that was drawn from a sample of fifty five real estate firms for a time span of six years from 2015 to 2020. In data analysis, panel estimation procedures were performed. Empirical results from the study show that financing strategies play a significant role on financial performance of real estate firms. Specifically, private equity, joint venture and mortgage finance had a positive but statistically insignificant influence on financial performance. Retained earnings positively and significantly influenced financial performance. Further, it was found that firm size had a moderating effect on the relationship between financial components and financial performance. The study recommends that real estate firms should use retained earnings to fund investments as this has highest positive benefits. Moreover, real estate companies should strategically enter into private equity, joint venture and mortgage agreements as this too can improve financial performance.