Capital Structure and Financial Performance of Companies listed under Manufacturing and Allied Sector at Nairobi Securities Exchange in Kenya
Abstract
Capital structure is a prevalent subject that has continued to pose a challenge among scholars in the field of finance and has increased remarkable attention since 1950's. The manufacturing and allied sector contribution of Gross Domestic Product has remained stagnant with inadequate increases in the previous three decades, giving an average of 10% from 1964-73 and increasing slightly to 13.6% from 1990-2007 and averaging below 10% recently. The purpose of this study was to assess capital structure and financial performance of companies listed under manufacturing and allied sector at Nairobi Securities Exchange, Kenya. The study employed descriptive research design and data was analyzed using multiple regressions. The target population comprised all the eight companies listed under manufacturing and allied sector at the Nairobi Security Exchange, Kenya where census approach was adopted. Results of the study revealed that retained earnings and equity have negative influence on financial performance of firms listed under manufacturing and allied sector in Kenya. Long term debt however, was found to have a positive impact on financial performance as measured by Return on Equity. The study recommends that the management board of manufacturing and allied sector should revamp their policies by adopting strategies that ensure optimum capital structure. Moreover, manufacturing companies should come up with more investing schemes and products diversification to increase their proceeds and hence additional capital.
Keywords: Capital Structure, Financial Performance, Retained Earnings, Equity & Long Term Debt.
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