FINANCIAL LEVERAGE AND FIRM PERFORMANCE OF LISTED NON-FINANCIAL FIRMS AT THE NAIROBI SECURITIES EXCHANGE, KENYA
FINANCIAL LEVERAGE AND FIRM PERFORMANCE OF LISTED NON-FINANCIAL FIRMS AT THE NAIROBI SECURITIES EXCHANGE, KENYA
Dennis Mbaabu - Master of Finance Student, Kenyatta University, Kenya
Dr. Salome Musau - Kenyatta University, Kenya
James Muturi - Kenyatta University, Kenya
ABSTRACT
The goal of incorporating financial leverage into a company's capital structure is to boost performance. According to the Capital Markets Authority (CMA), listed non-financial organizations suffering financial difficulties supervised under statutory or delisted has increased. CMA is concerned about the performance of these listed non-financial enterprises, which necessitates increased attention from researchers, policymakers, and other stakeholders. The study’s essence was to establish a link between financial leverage and Nairobi bourse non-financial corporates’ performance. The precise aims were to use financial leverage indicators such as the Debt Intensity, Financial Flexibility, Interest Obligation, and Debt Capitalization, as well as performance measures such as Equity’s and Assets’ Return. Size of firm was moderating variable herein. The study was based on Proposition II theory, theory of Agency Costs, theory on Trade-off, and Market Timing theory. The research was quantitative and used a causal research methodology. Data was derived from Nairobi bourse, CMA for bourse non-financial enterprises from 2013 to 2018. Data analysis was undertaken via descriptive statistics, correlation, and panel regression with results presented and interpreted in connection to the objectives. Diagnostic tests were undertaken prior to analysis. Data presentation form was tabulations, diagrams and charts. The findings illustrate the positive correlation of debt intensity and both the ROA and ROE of non-financial enterprises at Nairobi bourse, that the interest obligation has an affirmative and vital effect on ROE and ROA. Further, debt capitalization was established to positively affect both ROA and ROE with impression significant on ROA. Size of firm was found to articulately moderate the nexus between debt intensity and ROA of the target populace. Similarly, the size of the firm was found to moderate significantly the interrelation between debt intensity, debt capitalization and financial flexibility as well as the ROE. Financial flexibility had constructive impact on the target Nairobi bourse enterprises’ ROA and ROE though nonsignificant with ROA. On the premise of the results, financial flexibility has a beneficial impact on the firm results of Nairobi bourse non-financial entities. Considering the above findings, the research herein recommended the utility of more debt with larger firms applying higher debt for operations’ finance. Further policy makers should develop policies around tax incentives, stability of interest rates, check levels of inflation, and improve credit ratings so that firms are able to raise debt capital at minimum cost which improves results of firms.
