EFFECTS OF COST OF EQUITY ON FINANCIAL PERFORMANCE OF COMMERCIAL AND SERVICE FIRMS LISTED AT NAIROBI SECURITIES EXCHANGE IN KENYA
EFFECTS OF COST OF EQUITY ON FINANCIAL PERFORMANCE OF COMMERCIAL AND SERVICE FIRMS LISTED AT NAIROBI SECURITIES EXCHANGE IN KENYA
Bernard Okioga Moenga - MBA Student, School of Business and Economics, Kisii University, Kenya
Dr. Andrew Nyangau - Lecturer, Department of Accounting and Finance, Kisii University, Kenya
Professor Charles Okioga - School of Business and Economics, Kisii University, Kenya
ABSTRACT
Cost of capital is the rate of return required by investors for lending capital to the firm to finance its operations. Cost of capital plays pivotal role in the success or failure of firms. It indicates how firms plan its resources and it shows the opportunity cost of funds invested by companies. The aim of this study was to the effects of cost of capital on financial performance of commercial and service firms listed at Nairobi Securities Exchange in Kenya. It was based on the following specific objectives: To determine the effects of cost of equity on financial performance of commercial and service firms listed Nairobi securities Exchange. It was supported by the trade-off theory. The study adopted descriptive design. The target population of the study was 11 commercial and services firms at Nairobi securities exchange. The study applied purposeful sampling technique to select10 firms as the sample size. Data was collected form published annual reports and financial statements for 10 from 2011-2020. Data analysis was done using descriptive (Mean and standard deviation and inferential statistics (correlation and inferential statistics). Analyzed data was presented in tables. The study discovered that, Cost of equity had strong, significant and positive relationship with financial performance of listed commercial and services firms at Nairobi Securities Exchange. The study concluded that, Cost of equity had strong, significant and positive relationship with financial performance of listed commercial and services firms at Nairobi Securities Exchange This meant that, an increase in cost of equity by a single unit led to a corresponding increase in financial performance. The recommended that commercial and service firms listed at Nairobi securities Exchange should increase the application of equity than debt in their capital structure. Using more equity financing reduces the cost of funds since it has no repayment obligation, no additional financial burden to the firms. Additional cheap funds increase investment capabilities leading to increased financial performance of commercial and service firms listed at Nairobi securities Exchange.
