An analysis of the relationship between asset structure and debt policy for companies listed at the Nairobi Stock Exchange

Abstract

This paper examined the relationship between asset structure and debt policy of listed companies at the Nairobi stock exchange over the period 1999 to 2003 excluding companies in the financial sector. Several studies have shown that asset structure is a significant factor affecting capital structure of companies. Companies needing new finance will issue equity or debt, depending on prevailing circumstances. The debt policy measures examined were levels of corporate debt, maturity structure, and private versus public debt and priority structure of debt. The study considered book value of total assets and market values as well. The study found a direct relationship between asset structure and both the level of corporate debt, and private versus public debt when market values and book values of total assets were considered. A negative relationship exists between asset structure and maturity structure of corporate debt when b the market values and book values of total assets were considered . For priority structure of corporate debt the analysis gave an inconclusive answer.