Effect of Capital Structure on Financial Performance of Insurance Companies Listed at the Nairobi Securities Exchange
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Date
2017Author
Hakima, Mohammed, J
Type
ThesisLanguage
enMetadata
Show full item recordAbstract
The optimal capital structure levels and capital structure decisions that impact on the how
a firm performs have been a great dilemma for many. Capital structure decisions have an
impact on the growth and profitability of a firm as these decisions enable firms maximize
their shareholder’s wealth. The research objective was to determine the effect of capital
structure on financial performance of insurance firms listed at the NSE. To justify the
research findings, descriptive research design was used to describe the relationship
between the dependent variables and independent variables. Data collected for examination
purposes was purely secondary as it was extracted from annual reports and financial
statements of the listed firms. The target population was all the insurance firms listed at the
NSE. Six firms were listed and formed part of the study’s population. Data analysis was
done via multiple regression analysis, descriptive statistics and correlation analysis. For
the significance level to the hypothesis a confidence interval of 95 percent was used. The
analytical model used was financial performance as the dependent variable takin ROA as
the measure. Debt ratio, size of firm and liquidity were the independent variables. The
financial ratios were calculated by use of Microsoft Excel spreadsheet using data obtained
for six year period (2011-2016). The findings show debt ratio having a notable impact on
the ROA of insurance companies. Size of the firm was found to have an insignificant
negative relationship with the return on assets on the other hand liquidity was found to have
a positive and significant relationship with financial performance of the insurance firms as
measured by return on assets. The findings reveal that capital structure affects financial
performance of insurance firms at the NSE. In view of this it is recommended that if the
insurance firms are capable of funding their operations through retained earnings should
do so and reduce on undertaking borrowings as this will boost their overall performance.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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