The Impact of Capital Structure on the Share Price of Public Limited Companies Listed at Nairobi Securities Exchange

Abstract

Within corporate finance, the most debated topic is capital structure a few scholastics have referred organization’s capital structure an unsolved puzzle. Despite the fact that a broad measure of research with respect to capital structure has been directed, there is no uniform response to the inquiry: Is the share price performance of listed companies at the Nairobi Securities Exchange affected by capital structure? The motivation behind the examination is to decide whether there is a connection between a number organizations chose factors and the organizations' share price performance. The examination evaluated past investigations and capital structure theories with a specific end goal to conclude which factors that possibly could affect the organizations' share price performance. In view of the writing, the investigation tested the connection between capital structure and share price performance. Secondary data was collected during a time period of three years, between 2012 and 2016. This research followed a quantitative research method with a deductive approach.A regression analysis was conducted i.e both an Ordinary least square (OLS) and a multivariate analysis to determine whether there is a relationship between the companies selected factors and the share price perfromance. The results indicate that some of the company selected factors have an impact on the companies’ share price performance and there are some differences between the companies. The coefficient of determination between the variables are very strong at R=0.613. This is an indication that the relationship between the variables i.e. capital structure, trading volumes and share price performance was very strong. The percentage variation in the dependent variable being explained by the changes in the independent variables i.e. R square equals 0.376, that is, capital structure and trading volume trades explains 37.6%, change in share price perfromance. While 62.4 % are variations which are unexplained by the independent variables. In general, the outcomes demonstrate that a portion of the organization selected factors affect the share price perfomance. In any case, the effect of the companies selected factors is different between the companies. In conclusion, it is obvious from the literature and from the results that capital structure do influence the share price performance of companies listed at NSE. The all the predictor variables were shown to have a significant association with the share price perfromance.