LONG TERM DEBTS AND FINANCIAL PERFORMANCE OF MANUFACTURING FIRMS LISTED AT NAIROBI SECURITIES EXCHANGE, KENYA
LONG TERM DEBTS AND FINANCIAL PERFORMANCE OF MANUFACTURING FIRMS LISTED AT NAIROBI SECURITIES EXCHANGE, KENYA
Mbaka Erastus Mwiti - Student, Kenyatta University, Kenya
Dr. Francis Gitagia - Lecturer, Kenyatta University, Kenya
ABSTRACT
The manufacturing sector plays a pivotal role in the economies of developing nations inclusive of Kenya. This sector contributed $7.99 billion in output translating to an increase in GDP by 4.33% in the year 2021. However, the sector showed a decline in performance as indicated by declining trends in return on assets. Empirical evidence show that manufacturing sector have been unable to raise their own finances to boost their operations, and significantly rely on credit, an aspect that is suspected to affect performance. The study sought to determine the effect of long term debts on financial performance of manufacturing firms listed at Nairobi Securities Exchange. The main theory that anchored the study was pecking order theory. The target population was the 9 manufacturing firms listed in the Nairobi securities Exchange. A census of all the manufacturing firms listed in the Nairobi Securities Exchange was done. The study used secondary data from financial reports as published in the NSE handbook and Kenya National Bureau of Statistics for the period between 2017-2021. Panel regressions analysis and Pearson’s product moment correlation analysis were used for inferential analysis while means and standard deviations were used for purposes of descriptive analysis. Feasible Generalized Least Square (FGLS) regression results indicated that long term debt (p=0.044, <0.05) had a statistically significant positive effect on financial performance. Correlation analysis indicated that long term debt had a weak positive correlation with financial performance. The study concludes that firms with high long term liabilities relative to total assets and low current ratio show increased return on assets. The study recommends that, companies increase levels of debt to an optimal level (both long-term) and reduce interest rate coverage.
